Improving Your Financial Position Gives You More Opportunities
There is a lot of buzz in the financial news lately about mortgage rates. Supposedly they are, as of me writing this, the lowest they have been in 50 years (according to the headlines we saw on newspapers while traveling this weekend, at least). Rates as low as 4.25% have been spotted for a 30-year mortgage, with rates around the 5% mark becoming commonplace.
Our mortgage is a 30 year fixed mortgage at 6.375%. We got it almost exactly 2 years ago. And we are effectively stuck with it for the time being, no matter how low rates go. Why? Because we 100% financed our house, and with the drop in home values over the past two years and us just paying our minimum payment, I’d be surprised if we don’t already owe more than the house is worth on the market. One of the popular sites for looking at house values, Zillow, tells me that our home’s value is about $10000 higher than we paid for it (and it was appraised at) two years ago, but I doubt that’s accurate - home values here in the midwest have been dropping just like everywhere else.
Most times, one can only refinance one’s home for these amazing rates with a loan for 80% or less of the home’s value, in my research about it at least. Although our home is a modest one with a small price tag, we are not even close to only owing 80% on it. Yes, we pay PMI. Yes, that is a goal of mine - to rid us of the PMI, which will happen once we owe less than 80% of our home’s value. And an added benefit would be we could take advantage of what life has to offer when interest rates are two whole percentage points lower than our current one.
But for now, we sit tight. I’m not upset by it - I’m mellow. We are slowly but surely improving our financial situation. And maybe next time, we’ll be able to take advantage of opportunities to improve it even more.
Note: I wrote this on Friday and scheduled it for today, because I knew we’d be traveling. Right after I finished writing it, the power in our house went out (and because of the ice, could be out until Christmas Eve), and a comedy of errors including having to board our cats so we could leave, winterizing the house for an extended power outage in the dark, the not-so-blessed Saturn dying on the 1000 mile trip out east, and various other random things have occurred I’ll write more fully about later this week. Hope your holidays are going more smoothly than ours!
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December 23rd, 2008 at 12:10 am
I know how you feel. I was just telling my wife how I wished we had enough to put 20% down on a new home. The combination of low interest rates AND low home prices is an opportunity that doesn’t come along often. But like you, I am working to improve my financial situation so hopefully I am prepared the next time opportunity shows itself.
December 23rd, 2008 at 1:12 pm
I know how you feel also. We put 10% down on our current home, but due to the hit on real estate in our area, our house is now worth around $100,000 less than we paid for it (or are paying for it…), so we’re upside-down. To get to 20% equity is going to take a LONG time. We’re at 6.125% on our first mortgage (fixed, 30 years) so it’s not killing us, but it sure would be nice to free up a little more cash flow. I told my wife the only thing I wanted for Christmas was to be able to take advantage of lower mortgage rates. Guess I’m all grown up now…
December 23rd, 2008 at 2:50 pm
I’m exactly where you are - maybe a year ahead. My house was 100% financed and the 20% loan is even higher than the 6% loan. It’s now rented, but since I couldn’t rent it for enough to cover 100% mortgage plus PMI, have to still make partial payments each month. I’m hoping that will catch-up over time, but wonder about paying down the 20%. Over at 7m7y.com, AJC advocates looking for what gives us the best return on our dollar and right now the 8% on the 20% loan is not the worse debt I have. Have a great time on your trip - hope everything’s fine when you return!
December 23rd, 2008 at 4:19 pm
Have you thought about taking out a personal loan for the less than 20% it would take to pay the house down to the 80% figure? Would the difference in PMI make up eventually for the savings in interest over the life of the loan? Just a thought.
Dealing in percentages, one does not know if you need a couple thousand to do that, or 10’s of thousands to do that - so hard to say if it is feasible or not. Of course, there is the additional payment required also - but sometimes it can be worth it, if the cash flow works out for you.
I did this once when I wanted to go from my ARM introductory rate to my fixed rate (within the first 3 years of the mortgage) and it worked out well for me. Just a thought.
Keep a good sense of humor on all the rest of the stuff - the comedy of errors - happening to you. Just remember, if you are getting hit with all the problems, then someone else is being left alone
Thanks for doing that for the rest of us ! haha
December 24th, 2008 at 12:41 pm
i have a different sort of problem that is keeping me from refinancing. My principal balance on my 6% 30-year fixed rate loan is just $68,000. (I put 45% down when i bought it. I am single but good at saving money.) I’ve been prepaying for 13 years. I started out prepaying just $100 or $200 a month but for the past few years i’ve been doing $425 a month. I’m guessing, and i wish i knew some math whiz who could make this calculation, that i’d do better to just keep prepaying on the balance, which, if i do, i’m scheduled to pay off entirely in 7 years, rather than shelling out a few thousand for a refinance closing.