January 22, 2003
Fun with Mortgages
So, last week I received a phone call last week from a mortgage broker asking if I'm interested in refinancing my home since the rates are getting better and better. I asked what rates he was offering, and his response included a 4.8% rate for 15 years or 5.5% for 20 years. That got my attention.
Of course, when you actually sit down with a mortgage broker (which we did last night), the rates change. The fees start to pile up. You are presented with a TON of paperwork and little or no time to consider your options. It's worse than buying a car, where at least you can say, "you know, the (insert car name here) at (insert dealership name here) shows a sticker price of X. Can you beat that, or would it be better for me to go buy a (insert name of different brand of car)?"
So the mortgage broker, after more than an hour of combing through our financial statements, stuns me with fees totalling in excess of $10,000 and asks if I'm ready to get started. The required home appraisal, of course, is paid out-of-pocket. And we pay the brokers fees. So our mortgage rate has "improved" on paper, but now it's gonna pull a huge wad of cash out my pocket, now and for the next several years. But it looks really good on paper, all that savings, but maybe it would be more attractive if I was actually saving money.
In reality, the savings would not have been realized for 5-7 years. The increased payments would have been based on an appraisal of the house and an estimated current market value for our home. Right now, the house is in great shape, in a great neighborhood, and we're already looking at making a huge profit on the house if we were to sell today... which we're not. And cutting the loan length from 30 to 20 years can be accomplished if I just pay a little more each month (See Monster.com for a great little payment calculator), saving more than $70k by paying off early.
So I fretted about the mortgage thing all night last night, hardly sleeping, and finally getting out of bed this morning to crunch numbers (aren't amortization tables great at 6:30AM?). I've decided that I'm happy where I am, mortgage-wise, and while I have to say that the broker was nice and very helpful, my thoughts about the last 14 hours of finance juggling come down to these few statements:
- If it does not feel right, it probably isn't.
- If the risk seems too great, take the time to crunch the numbers and weigh the options.
- Be willing to take risks, but not at the expense of the well being of your personal finances.