By: Revanche

Targeting big wins, a refinance application and disappointing reality

July 9, 2012

I’ve been, in the back of my mind, in this weird mental contortionist sort of way, staring at certain big areas of our required expenses to cut down drastically.

The cable, phone and internet package was finally pruned back.  We’ve chucked Comcast’s outrageous packaging of 151 channels of which 115 are crap or can’t be understood linguistically, anthropologically or by any stretch of the rational mind, just so that we can watch a few of the shows we enjoy having on in the background.

Thanks again to patient stalking of Fatwallet, I’d found an AT&T dryloop deal for $20/month for high speed internet alone. A neighbor was kind enough to confirm that the service was decent and didn’t need a single frill or frippery like phone or anything else to work properly.

So that was progress.

The next best thing was to tackle the mortgage because rates are really low and if I wanted the biggest bang for our time, that right there would do it.

Not so much.

Of course I did some basic research into rates on offer.  I was astounded at the lack of attractive refinance options.

I know it’s not 2004 anymore, but I expected to put down a 20% down payment which would bring the loan down a substantial amount and figured we could get:

1. A reputable lender
2. A rate under 3%
3. Zero points
4. A lower monthly payment

I may have been delusional. Bankrate’s possible offers were pretty bad. Mostly the loans were:

1. With odd lenders
2. Between high 2% to mid 3%
3. Either zero points up through 3.5 points
4. Up to $400 more per month
5. Up to $15,000 in closing costs

Then I ran the numbers on INGDirect. And Lo! The sun had come through the clouds.

1. Easy Orange – 5 Year Fixed
2. Rate:  2.625%
3. Zero points
4. $600 less monthly
5. Approximately $2,000 in closing costs
6. Option to renew in 5 years with same closing costs and same rate

I had all the initial information up front and it sounded good. It warned me about a Final Payment “larger than the rest”, amount unspecified, but that didn’t seem unusual. Like most loans, I expected that a last payment would be at least a few times larger than the rest.

Bear in mind that I was cramming this into one of our endless days and nights.  Goes something like “drag out of bed, work a really long day, try to eat at least one meal, rely on PiC to take care of Doggle morning and night because I will pass out if I do one more thing that’s not strictly necessary to sustain life, fall into a coma.”

I completed the mortgage application over dinner one night.

The detail I missed, the big glaring flaw I overlooked, was that it was a 5 or 10 year fixed rate mortgage based on paying over 30 years principle and interest.  Says right there on the page.

So as it turns out, the “Final Payment” was a Balloon Payment. They just chose to use different language and I didn’t twig to the obvious.

With the payments artificially strung out across the supposed 30 years, by the time we reached the end of five years, we’d effectively have made zero progress. It was completely counterproductive.

Yes, I absolutely assumed it was down to the lowered interest rate that we were getting everything we wanted: lower rate, lower payments, and paying off the whole kit and caboodle in a shorter time frame. Yes, I was insane with fatigue to have failed to see how the real math was going to play out.

Lament: Could they not have just used the phrase Balloon Payment like normal people?

What this all means now

Option 1: Take the loan but pay up to the same monthly amt we’ve been paying. Doesn’t reduce our monthly costs which was my real goal but gets us the lower rate.  Very little progress and eats up a good portion of our cash but we’re doing something. And at the end of the five years, I’ll still need to refinance because who’s going to have another some hundreds of thousands to pay that off? I’m good but I’m not that good.

Option 2: Don’t take the loan and start brainstorming again.  (No action)

Option 3:  Don’t take the loan and just use my Auto-Payoff tactic of throwing large chunks of money at the debt, but that also doesn’t really get at my real goal either.

My short term goal is to reduce our total monthly cash flow; the long term goal is to pay off  the mortgage. Going the Auto-Payoff route only deals with the long term and doesn’t do anything for the short-term. And may actually destabilize our short and medium term positions.

Honestly I’m rather undecided what to do just yet – other than to call and clarify a point or two about the loan.

14 Responses to “Targeting big wins, a refinance application and disappointing reality”

  1. It doesn’t sound like an ARM is a good fit for your situation. There’s too much uncertainty in your future.

    I think LeightPF can swing an ARM, but only because she can easily pay it off in 5 years, could probably pay it off earlier if she diverted other expenses, and doesn’t have as much uncertainty about her health situation etc. (Also, hers just adjusts a limited amount after the ARM rate is over, no balloon payment.) But ARMs aren’t for most people and aren’t worth the uncertainty and the danger at the end of the ARM period.

    Is the problem that you’re having to have a jumbo loan? (I didn’t know you guys had a house!) Have you checked with the other big lenders for fixed rate 30 year 20% down loans? We’ve been very happy with Wells Fargo. You can also bargain on closing costs if you have multiple lenders.

    • Revanche says:

      We actually applied for a Fixed Rate mortgage, as I was pretty sure I didn’t want an ARM. So that’s partly why I wasn’t looking out for the balloon payment and made that assumption about the “Final Payment.”

      But it’s that thing about how the mortgage payments are calculated, as though they were stretched across the 30-year term anyway. That’s the kicker.

      Definitely no jumbo loan, it’s a relatively … uh, non-jumbo loan.

      See, I don’t know whether to use numbers yet or not because this is shared money now and I want to be sure PiC’s cool with that. I just don’t want an ARM b/c I don’t want one. Not unless it’s bionic! Har … har ….

  2. tom says:

    If you were on ING Direct, then you probably also saw they have 5/1 ARMs, which doesn’t require a balloon payment at the end. Rates for those are around 2.675% or so.

    • Revanche says:

      I did see the ARMs but that setup is too uncertain with the room for too many rate hikes (and too large a spread of) at the close of the loan for my liking. If I were able to pay the whole amount off by the end of five yrs, I’d go for the ARM but I suspect that’s too ambitious.

  3. StackingCash says:

    Small battles are good but the big war on debt is essential FTW. I would be leary about any ARMs because they have nowhere to go but up. Unless you think they will stay this low forever… J. Money has been very lucky that his HELOC has been at such a low interest rate but I think even he knows that will not last and has started a more aggressive debt repayment budget.

    • Revanche says:

      I don’t think anything will stay put forever, that’s why I wanted to jump on the rate I liked now. But agreed that the overall debt reduction is quite important.

  4. csdx says:

    The ING one isn’t too bad as you have the renewal option instead of the balloon payment. Howerver, the refinance costs esentially end up being a hidden interest rate hike in that case.

    I think maybe you’re expectations for rates are a bit off, unless you’re looking for an ARM or an accelerated repayment (15, or 10 year loan). If you’re on fatwallet I’d reccomend checking out their mortgage interest rate threads to get a good handle of what people are finding out there.

    Also maybe check out a mortgage broker or two. They’ll do the resarch work for you and come up with their best offer. Even with their fees added in it might be a better offer than you can end up finding on your own, at least that was for my last refinance.

    • Revanche says:

      Honestly I did want an accelerated repayment to get rid of the whole thing and the cost of the refinance (closing fees) were estimated at $2000. I’d just hoped to avoid having to use the renewal option, though I liked having it.

      I will hop back on FW, that’s usually my first port of call.

  5. We’re in the same boat: looking to reduce monthly expenditures, yet still throwing extra money at the mortgage principal (which, to be honest, is not that much extra). I inquired about a few refinance options, but even with our stellar credit, I only found rates around 4% for another 30-year loan. I really don’t want to increase our payoff time period, but if there were no closing costs / no need to re-escrow (the SAME LENDER won’t roll the damn escrow over!) I’d be down for it. I was also told that we ‘don’t qualify’ for the no closing cost refi option through our current lender. Maybe we need to miss a few payments first? Sigh. We’re already at 5% on the mortgage, so a shorter term at 4% won’t help with our cash flow at this point. At least PiC let you kill off the cable TV/phone. My husband would probably just kill ME if I did that.

  6. Gauss says:

    Hmmm… What about contacting a mortgage broker directly instead of all the sketchy mortgage sites? We have been working with our local credit union and got a nice 15-year, 2.875% with no points. Keep looking – there are still good deals out there.

    • Revanche says:

      I have a *thing* about being sold products by people – often my experiences have been marred by dealing with far sketchier people than the products I find after doing my research online and purchasing there. But I’ll keep looking, obviously this one doesn’t fit the ticket either!

  7. Shelley says:

    I had to do a variable rate mortgage when I bought this house because I was new in the country and only certain banks would do business with me. It was fixed at something really low for the first five years and I couldn’t pay anything off the principle for that time, but I put money aside for that purpose all the same. I imagine they were well surprised when my 30 year mortgage got paid off in 8 years instead! Good luck with finding your new mortgage. Banks aren’t exactly generous these days, in spite of having been bailed out (grumble). It’s worth the effort, though, as you well know.

    • Revanche says:

      Thank you – I’m still looking for a good rate and deal and even if I can’t find one I will keep setting aside money to pay it off. This will happen one way or another!

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