Friday, my wife and I signed the paperwork for our mortgage refinance. We are consolidating our mortgage (originally at 6%) and our home equity loan (at 8.375%) into one 30-year fixed 4.875% mortgage. But since this wasn’t a “streamline refinance,” I was required to start the 30-year clock over again.

At first I was disappointed that the extra gains I had made against my original “clock” were wiped out, but then I realized that it could actually be a benefit. Yes, being an estimated 30 years into debt again was frustrating, but it actually affords a little more freedom on how I pay off my debt.

The refinance took my nearly $1,183.72/month combined payment and slashed it to $943.58, for a savings of $240.14/month. But if I had kept my original clock, I would be somewhere around the 27 year mark (counting the extra payments I made) and would have $990.70/month payment – nearly $50/month extra. That $50 is very valuable to us right now.

Since the birth of our second child, we have been in need of a second “baby-safe” vehicle to replace my 15 year-old truck. When considering a new car, an extra $50/month goes a long way. The difference between a $200/month payment and a $250/month payment is an “O.K.” used car versus a good new car. Or that extra $50/month could go toward paying off our new debt from finishing our basement. Or, if I chose, I could apply that $50 could go toward the mortgage anyway – essentially making my own 27-year mortgage.

But “resetting the clock” only benefits you if you are responsible with your money. You’re not going to benefit at all if you waste those gains. I encourage you to look toward this option for extra savings, but only if you are disciplined enough to still apply the extra “savings” toward debt.

To aid our situation, we are likely to save the full $240/month until we have enough for a car down-payment and then use that savings toward paying off the new debt and the car as fast as possible. Although I am using this opportunity to add more debt to our financial house, I am comfortable that it is a good idea since it is based off of need (a baby-safe vehicle) instead of want (a projector for my new downstairs media room).

If you are able to secure a refinance (or new mortgage) with a great rate, I encourage you to take full advantage of it. Use the money you save to reduce your bad debt and to accelerate your journey to financial freedom.

Photo by: 2create

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Photo by: Rev Dan Catt

I love my credit union. Not only do I get higher interest rates on my savings than regular brick-and-mortar banks, it also is not being affected all that bad with the credit crunch.

So, today, I get a call from a friend in the mortgage loan department at the credit union where I hold my mortgage asking if I want to take advantage of the new rates. She presented me with three options:

1. Perform a “loan modification” which would reset my current loan to 5.625% and would cost $250 to execute.
2. Perform a “streamline refinance” which would refinance my current loan to 4.875% and would cost around $575.
3. Perform a traditional refinance, roll my home equity (currently at 8.375%) back into my mortgage, and roll the closing costs in all at 4.875% with closing costs of around $2,000.

I calculated out the savings for all the options and determined that option #3 was my best bet. My current mortgage + home equity payment is near $1,200. The new mortgage’s payment will be around $930. That amount is even less than my original mortgage and provides a savings of more than $250 each month. So once we execute the refinance, we will “pay ourselves back” in less than 10 months for the cost of the refinance and the rest is pure savings.

If your credit is sound and your house has a decent amount of equity, you really owe it to yourself to contact your bank and see about getting a refinance right away. The rates don’t have much farther to fall, so today may be your best possible rate. Strike while that iron is hot!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Yesterday, I mentioned that we hired an appraiser to come and give us a full appraisal of our house for property tax purposes. When the appraisal came in much higher than expected – $15,000 over our purchase price 2 years ago – I wondered if we could benefit from this dramatic change.

I remembered reading before about taking control of the tax and insurance escrow your bank forces you to fund. The bank does this to make sure that you don’t accidentally lose their property by either defaulting on your taxes or by an uninsured loss of the property. Many banks and credit unions will allow you to take control of this account at a certain debt level – proving you are a trustworthy debtor.

I contacted my credit union and they said they would allow me to manage my own tax and insurance payments if my loan-to-value was less than 80%. With the new appraisal, my loan-to-value crept down to 80.4%. Apparently this was enough to convince them to release my escrow and they surprised me by immediately depositing my accrued balance of over $3,500 into my attached savings account. As soon as the check for that balance makes it to me, I will immediately deposit that into a new ING Direct Orange Savings account that I set up just for my own personal escrow account.

Immediately, by using ING Direct instead of my credit union, I will realize an interest rate increase from 1% to 3% and triple my earnings over the course of a year. The max amount in this account should be somewhere around $5,500, so I could earn up to $110 more over the year than if I had left it at the credit union.

This also opens up the option for me to use a short-term CD (6 months, probably) to gain even more interest. The downside of investing in a CD is that it requires me to have my full balance available up-front instead of direct depositing my escrow amount into a savings account. Plus, if I happened to have $5,500 just sitting around, I would rather start investing in some Vanguard index funds instead of collecting a mere 3% interest.

This method isn’t for the undisciplined, though. Since your bank isn’t making you save that money, you have to remember to do it yourself. That means setting up an automatic withdrawal or a direct deposit from your paycheck to make sure you’re saving enough for when the tax bill arrives. The last thing you want is for the county to auction off your property to pay your tax debt, so you must be sure to have the money you need for the tax bill available when it arrives.

If you’ve reached 80% loan-to-value, I recommend asking your lender about releasing your escrow. It won’t be a huge gain initially, but over time the interest will add up for you and you get the assurance of knowing you are in control of your finances.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Wednesday morning, I went to the county courthouse to challenge my property tax assessment. (I talked more about receiving the notice from the county in a previous post.) When I arrived, 4 of my neighbors were already there! Apparently, they over-assessed our entire neighborhood. Hopefully that will give me some leverage to get mine changed, too…

The process of the challenge was, for lack of better words, uneventful and deflating. When my name was called, I walked into the office of one of the three Assessment Board members with my bank’s appraisal printed out, noting that the bank believed it to be worth $50,000 less than what the county wanted to tax me for. Since I purchased this house 1 1/2 years ago, I believe there should be no problem in getting this overturned, but that was not the impression the board member gave me. She glanced over the assessment, wrote down a few numbers on another sheet, and, with a very bored expression, told me I’ll receive a new letter in March detailing what they decided.

What? I have to wait 2 more months to get this resolved with no real indication that anything will be done for me? I live in one of the most corrupt areas in the region (if not the whole country), so not getting any affirmation immediately sends of warning bells in my head that the only reason she even let me in her office to challenge it is because she was legally required to. *sigh* I suppose that’s the best I can do. Now to wait for March to roll around and pray that there is a secondary appeal process if they do screw me over…

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Well, I just received the most enjoyable piece of mail today… My credit union sent out my new set of coupons for paying my mortgage for 2008 and, much to my bewilderment, the amount went up by almost $50 per month! That means my taxes for last year were more than $400 higher than the bank expected. My taxes went up by over 10%! Well, so much for me getting ahead… Now I’ll have to have an extra $25 pulled for each paycheck to cover the difference.

On top of that, when the assessment of my property arrived in the mail earlier this month, I immediately sent notice that I would be contesting it. The county apparently decided that, even with falling house prices around me, my house increased in value by about 15%. They pegged the assessment at $50,000 higher than the highest appraisal I received a year and a half ago when I purchased the property. I was incensed! My hearing is on January 9 and you can be sure I’m going to write more on it.

Fortunately, property taxes in this area are something that can be contested. And, in cases such as these, it makes sense to. I would encourage everyone to take advantage of that opportunity and not just sit back and take it if your government is treating you in a way you believe to be unfair.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com