My largest monthly expenditure is my house payment. So what better way to make a dent on expenses than to reduce it? When I learned that the job I relied on to pay the mortgage was most likely going away, the first thing I did was look into refinancing. I started by calling the company that held my mortgage, Chase. Chase was not my first choice. They purchased my mortgage from Washington Mutual, who had purchased it from a local bank. My line of thought was that because I already had a mortgage with them, a refinance with Chase might be faster and easier. I was wrong, Chase told me that they were so overloaded with refinances that they were referring everyone to Quicken Loans. So I spoke with someone at Quicken who quoted me a rate that was higher than I was hoping to get. My current rate was already on okay rate at 6.875%. I don’t remember exactly what they quoted me but it was somewhere around 5.5%. My second call was to a regional bank, Arvest Bank, where a friend had refinanced a few years earlier. They quoted me a rate of 4.5% and told me that they should be able to process the loan in 4 weeks. The Quicken rate was almost a percentage point higher and I feared that they would not be able to process the loan nearly as fast.
15 or 30 year
I have been paying extra on my mortgage for several years. I had not refinanced earlier, because I knew I was making headway with the extra payments and did not want to lock myself into another 30 years or a higher payment with a 15 year. When I looked into this refinance, the rate was low enough that a 15 year would have still been a few dollars less than my original payment. While I love the idea of a 15 year, I knew that would not give me as much flexibility. With my current situation, flexibility is key. While I am not excited about going back to 30 years of payments, I realize that once I have a steady income I can begin making extra payments and pay it off in much less time.
Several years ago, I read an article about handling your taxes and insurance on your own without an escrow account. If you have at least 20% equity in your home, you can often do away with the escrow account and handle it yourself. For me there were two perks to doing this; earning interest on my own money and not worrying about what might happen if the bank collapsed. Don’t get me wrong, that’s not something that I lost sleep over but after reading about Lynnae’s experience, I felt more comfortable handling my own money. At that time, I called Chase and was told that since my original mortgage was set up with an escrow account they could not (i.e. would not) change it. This new mortgage was an opportunity to do away with that escrow account. The new bank was not excited about my request and responded by saying that “most people use an escrow account.” I explained that I understood that but wanted to handle it myself. They said okay. I did have to keep reminding them that I did not want an escrow account. If I had not done so, I am confident I would have ended up with one.
There are a few things I learned about timing a refinance. First of all, you want to be pretty confident that you are going to have a job the day that you refinance. The bank will call to verify your employment when they begin processing your loan. They will call again right before you close. The bank called my office the day before closing. Secondly, refinancing at tax time is a little complicated. My property taxes were due at the end of December. Chase paid my taxes with a check that also included the taxes for the rest of their customers in Oklahoma County. Because that check included a number of properties, it took awhile to process. I was informed the day before closing that because my tax payment had not been processed I would need to bring a check for that amount. Fortunately, I had that money in savings and was able to bring a check. If I hadn’t had the money, we would not have closed the loan. I was concerned that it would be a hassle to get my money back. Luckily, the payment from Chase had been processed when the title company went to pay the taxes. So I received a check from the title company within a couple of weeks.
While refinancing might not be an option for everyone, I highly recommend exploring the option before going out on your own. I am certain I would not have been able to refinance after my regular job ended and it has freed up nearly $200 in my monthly budget.