Saturday, August 3, 2013

More Than An American Dream -- A Financial Friend for Life

I stumbled upon a novel way to consolidate family debt through refinancing before I read about it in the newspapers or at the start of the world wide web (internet). After three months of looking for a home, I had purchased a small 1938 fixer-upper in October 1996 in West Los Angeles, CA. There were several reasons that led to this purchase. One, I kept overhearing the tax implications for a single person. In short, I heard that a single person has few tax breaks. Second, I had seen an advertisement from a US Department of Housing and Urban Development announcing its annual convention to education future homeowners. At that convention, I attended a lecture where the speaker said that if you are renting, you are buying a house or property for someone else. Third, within three months after moving into our apartment on the Westside, I saw a new notice posted over the mailbox banning all barbecuing on patios. When I called the local fire department to inquire about its regulation, I learned that there was a ban on gas pits on a balcony and not a small charcoal barbecue pit in apartments. Finally, the house is located on a street named after the state from where my husband was raised. So, by October 1996, I cleaned out what little savings I had since I had anticipated only one purchase that year, and it was a new SUV in June.

The Financial Atmosphere in the Mid-90s

Even though I had a decent government attorney position, I felt uncredit-worthy and disappointed when I had left the HUD convention in March 1996 because different representative at several financial institutions could not give me a pre-approved loan letter for the house hunting process. So, you can imagine how difficult it was to find financing within the 90-day escrow period. Back in the mid-nineties, before the real estate bubble burst, you could not combine your income with a boyfriend to qualify for a mortgage. A decade later, the lending world was making so much money that it was allowing any combination of people to borrow money. So, I ended up with an adjustable loan that adjusted every 6 months with a 1 percent margin. All I knew was that the lender was making a lot of money off me. Although the rate started at 8%, 18 months later it was at 13%. So, at that point, we decided that we better consult with a mortgage broker. Fortunately, the mortgage was the type that we could refinance.

Solving Two Problems At The First Refinance

At the same time, I had married, and my husband had delinquent student loans. I had paid off half of it before the purchase of the car. The student loan debts kept growing, and we were looking at $30,000. So, we refinanced $240,000, covering the original loan, the student loan, and several thousand for home improvement.  Our note went from $1400 to a little over $1600, but it was well worth it. The most memorable aspect of the refinance was that our curbside appraisal was determined to be  $600,000, essentially tripling in value of our purchase in 18 months. At this point, we came up with our household proverb, “It’s better to be lucky than to be smart.”

Second Refinance to Improve Our Quality of Living

In 2003, we decided that a small starter home that once housed the prior owner’s family of five was not big enough for today’s family of 4, especially when we had occasional visits from family members living out of state. So, we cashed out $230,000 for an expansion. The rate was at 6%, but the house gave us enough equity that the refinance went smoothly. We had thought that this was the last time we would refinance, but we were wrong.

Recent Refinance for An Historically Low Interest Rate

In 2011, we decided to refinance once more. The interest rate was too low to ignore, and deep down we didn’t like the idea that the loan extended to 2033. We also decided to purchase a quarter of a point because we had the cash and also shorten the loan to 15 years so that it would end at the same time as our initial loan, 2026. At the end, our rate was 3.25% when the average rate nationwide was close to 4%. We dropped our monthly note slightly to $2,635.01. We really love our federal credit union that serviced the military and my sector of the federal government, and we are currently a year ahead in payment. We are not sure if we are going to have to borrow against the equity of our house to send our two children to college, but we won’t rule it out knowing that this little property through refinancing has really helped us financially through the course of our ownership.

No comments:

Post a Comment