My wife and I got our house in Austin, TX right after the market collapsed in 2007. We had a motivated seller, who was building a house on a golf course and was hemorrhaging money thanks to double mortgage payments. We put in about $10,000 in remodeling, and the house supposedly maintained its value of around $200,000 due to Austin’s relative lack of participation in the country’s obsession with flipping houses. Our rate is 6.625% fixed through Bank of America.
Can we get a better deal on our mortgage if focusing solely on the monthly payment?
First off, I am a long-term dollar bear just like Peter Schiff, Jim Rogers, Marc Faber, and a few other “pessimism porn” peddlers. I have lived through the hyperinflation of 92-94 in Ukraine, know what it’s like, and convinced that the United States is well on its way to a similar fate. Therefore, I want to do everything possible to pay as little as I can right now (without getting into scary adjustable rate mortgages) because in the future I can be paying the house off with much cheaper dollars. Very much cheaper.
In fact, if the inflation is just 5% a year, it would make a hypothetical $1,200 monthly payment be half as painful to disburse out of your checking account in just 12 years (provided the paycheck keeps up). In another 12 years, $1,200 will have the purchasing power of $300. If you decide to pay the house off faster at that point, you can make quadruple payments for the last 6 years for the price of the original payment in terms of purchasing power. And the inflation is picking up, make no mistake about it.
Second, during periods of inflation, assets and commodities start to take up more and more of your hard-earned money, while rents and housing expenses – less and less. For example, during the insanity of Weimar Republic’s hyperinflation, food went from costing about 20-30% of an average paycheck to 99%, while rents fell to 1%. This doesn’t quite apply to us because rather than renting, we bought … I’m sure Peter Schiff would have something to say about that, but we’re very happy with our home.
It’s no surprise that I started looking at refinancing our mortgage … I figured, locking in the best possible rate right now, and taking advantage of coming inflation is a very prudent thing to do.
My first step was taking to the bank. That fell through because we’re short of the 20% equity stake they needed us to have … after all, it’s all interest we’re paying now. On top of that, because of the terms of our mortgage, they paid our closing costs and PMI, so we can’t do much until we’re the proud owners of a fifth of our home. I’ll take the fifth with nice furniture and the Wii, thank you very much.
Then, I talked with some friends who were in the business. That got kind of awkward quickly because if they couldn’t beat someone else’s offer, I had to deal with refusing their offer gently.
Finally, I just went online. I tried Lending Tree, but their system matched me with so many renegade mortgage flippers that I got inundated with phone calls from “Bob’s Corner BBQ amd Mortgage Refinancing”. Screw that, so I went to Quicken Loans to start by checking mortgage rates. At least their site wasn’t a maze of rate wizards and a clusterf&*k of pop-ups. You get quick current rates, an 800 number at the top, and a promise to cut your mortgage payment.
According to them, if we refinanced at 4.75%, which is almost a 2% drop in our rate, we’d save about $500 a month on a 30-year fixed. However, I thought it was funny that they still offered 5-year adjustable refinancing, although they did do the responsible thing and posted the info about future adjustments, which have a lifetime cap of 5% (not bad).
I dialed the 800 number, pressed “2″ for the refinance option, and spoke with a rep within a minute. He explained that Quicken Loans is a direct lender, which means that they flip 100% of their mortgages … though it makes me cringe from a prudent person’s point of view, it’s the economic reality of our times. I would feel much better if the relationship with my banker was such that he treated the mortgage as an investment vehicle for his bank, not a “buy low, sell high” commodity.
He took my info and promised to get back with me. I am hoping we can get all costs rolled into a new loan with a 1.5-2 point drop in the rate. I certainly don’t want to miss the opportunity of locking in a low rate before another Paul Volcker comes in and jacks up the rates to 20%.
I’ll keep y’all posted on how everything goes — laters.