Mortgage rates are in the cellar so refinancings are popular now. What about us? Should we refinance?
We bought our Baltimore townhouse for $168,500 in 2001 with a 30-year mortgage and 6.625% fixed interest rate.
Then we refinanced $159,600 in 2003 with a 30-year mortgage and 5.750% fixed rate. The house was appraised at $199,500. Closing costs were $2,539.
Then we refinanced $141,700 in 2010 with a 20-year mortgage and 4.375% fixed rate. The house was appraised at $245,000. Closing costs were $3,310.
Today, we have $81,805 left outstanding on the loan, with a November 2030 maturity.
A refinancing decision comes down to what rate you can secure, time left on the loan, and closing costs. Time left on the loan means until payoff or you sell the house, whichever comes first.
There are lots of mortgage refinancing calculators out there, but most of them are tied to a lender, so user beware.
Rates couldn’t be much better: 2.875% for a 30-year fixed, and 2.125% for a 10-year fixed. Although the rate you land is always a bit higher than what is touted, for some reason.
Also keep in mind a new (as of December) .5% ‘adverse market’ fee that is levied on all refinancings of $125,000 or more that are ultimately sold to mortgage giants Fannie Mae and Freddie Mac. VA and FHA loans are exempt.
The issue with us is the smaller balance and limited time left on the life of the loan. It’s one thing if you have a $1M mortgage and 30-year horizon. Nine years and $81k doesn’t carry the same urgency. Then there’s also the miniscule chance that we run off to Maine like we’ve talked about, which would squeeze the time horizon even more.
Still, we’d be open to a refinance if someone out there wants to pitch us. I just don’t have the motivation to wade into the high weeds of competing providers.
My Brother’s New Baronial Home
I heard recently that my brother Grant and his wife Krista were looking for a new house. Oh, they must be looking to downsize, I think, because they have two daughters off to college, and just a son left at home.
But no. They were looking at more square footage and more property than the already ample house and acreage that they already had. With a hefty price increase to go with it.
It’s a blazing hot sellers market, so everything they were looking at was Bay Area expensive. But they would be selling their existing home at the same time, so that would net a higher-than-normal price as well.
Before long, they won a bidding war for a Yellowstone lodge in the Harford County woods. It even has a nifty little faux stream in the front yard (but no geysers).
I was still scratching my head a bit about it when I caught up with my brother at the moving party. “What are you doing buying a mansion?” I joked.
“This is our retirement. We only have a small 401k fund, but we have this,” he said, his arm doing a dramatic Vanna White sweep across his new property. “It’s more enjoyable on a daily basis than impulsively checking the stock market every evening.”
“Plus, with the government handing out fistfuls of cash and interest rates at historic lows, it seemed to make sense.” He is concerned that inflation has nowhere to go but up, possibly dramatically, with all the free money flowing around. Just this week, it was announced that consumer prices leapt 4.2% over the past year.
He was originally going to add value to his existing house with an addition, but the exorbitant cost of lumber and high quotes from builders were discouraging.
I couldn’t argue much. As investments go, buying a single-family home is a good one. The long-term supply/demand trends are excellent as the population grows and the amount of land shrinks due to global warming.
The expected return on a house is about equal to investing in stocks – 8.6-10% per year. That figure swings wildly depending on state and jurisdiction, but rural Harford County, Md. is generally considered sound. Values also gyrate like a pole dancer based on the economy, but so do other good-yield investments.
The only potential issue is one of liquidity. If you have a 401k or IRA, you can start taking penalty-free cash withdrawals starting at 59 1/2. When your nest egg primarily rests in your owner-occupied home, to generate retirement cash, you need to sell the house or rent it, or start a reverse mortgage (age 62 or older).
Or just work until you keel over, God willing.
Sitting on Your Hands School of Negotiating
Grant and Krista’s former home was located off the road, so they’d taken the liberty to start a redneck-style mini junkyard at the house. A decrepit horse trailer sat cheek by jowl with a vintage Pontiac minivan that would self-propel no more.
With the house soon to go on the market, the rusted heaps had to go. Grant called an actual junkyard to gauge their interest. He could keep the horse trailer, but they’d pay $370 for the minivan.
Grant was so busy painting and waxing and fixing things in preparation for putting the house on the market, that he forgot to follow up with the salvage guy, who texted him a few days later: “OK, I’ll pay you $390 for the van.”
Still working full time while frantically filling a POD with the first load of boxes, Grant again didn’t get back regarding the minivan sale. A couple days later: “My final offer is $410.” Barely believing his good fortune, Grant jumped at it.
The lesson? Sometimes the best negotiation tactic is to sleep on things. While other early birds are working their tails off for a meager meal, you can sit back and wait for the rain to come.