July 9, 2012

Targeting big wins, a refinance application and disappointing reality

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.