Financial Samurai

Alas, after 8 weeks my primary residence mortgage refinance is now done!  It took so long that I actually forgot I was refinancing my mortgage until the bank called to ask when I could meet the notary to sign all the documents.

The process was pretty painless since I refinanced with the same bank.  I sent them the general paper work such as my W2, bank asset statements,  and pay stubs.  They did one appraisal which took all of 20 minutes and all I had to do was wait four more weeks to get it done!  The refinance this year was much easier than the refinance in 2010, boding well for the thousands of others out there who are also looking to refinance their mortgages.

I learned some new things beyond the basics which you might find useful in your mortgage refinancing or initial mortgage application process.

MORTGAGE REFINANCE TIPS TO THINK ABOUT Read more…

Refinancing now is generally a wonderful idea as jumbo loans are back to all time lows.  That said, what happens if you are so underwater on your mortgage that you feel it doesn’t make sense to continue paying anymore because you don’t think value will ever recover?  Banks have become so annoyingly stubborn regarding allowing underwater homeowners to refinance, that you might have a better way.

Have you ever wondered why there have been so many foreclosures in states such as California, Nevada and Flordia?  I’ll tell you.  If you live in one of the 12 “non-recourse” states of Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington you are in luck!  If you so happen to own property in one of these states, and have substantial assets elsewhere, you can legally hand over the keys to the bank and exonerate yourself from the mortgage with no penalty against your other assets!

AN EXAMPLE ABOUT GETTING IN OVER YOUR HEAD AND BAILING Read more…

According to the IRS, the maximum mortgage amount you can claim interest on is $1,000,000 on first or second homes if the loan was taken after Oct 13, 1987.  You can also deduct interest on $100,000 for a second mortgage loan used for anything other the purchase of your first or second home.  More specifically, home equity debt means “any loan whose purpose is not to acquire, to construct, or substantially to improve a qualified home“.  Interesting right?  In other words, you can take a $100,000 home equity line of credit to buy a Porsche 911, an incredible home theater system, and do a little landscaping and all the interest is deductible!  No wonder why everybody took out so many Home Equity Lines Of Credit (HELOC)!  (Someone tell me this is wrong, b/c it just doesn’t sound right.)

You already know that the government is sexist because the maximum mortgage interest deduction limit stays at $1,000,000 even though both people could have $1,000,000 mortgages.  It’s beyond me why the government thinks two people who want to marry with $1,000,000 mortgages each, don’t deserve to keep their deductions.  But at any rate, just be aware that if you can afford such a mortgage, you might want to think of this crucial loss of deduction before you get married.  With rates averaging 5%-6%,  you could literally lose out on tens of thousands in interest deductions!

DON’T FORGET THE INCOME PHASEOUT KILLER TOO Read more…

You guys know that the one and only data point I track religiously is the 10-year yield right?  Well, after the 10 year yield dipped below 3%, I went to the bank with a buddy of mine to go see how much money we could borrow.  The wiry banker sat us down like a loving couple and asked us to go through our finances at which point I kindly stepped out of the room and let him go first.  Five minutes later, he came out with a grin on his face, so I curiously went in.

He proceeded to tell me some curious news.  “Look here Sam, you can borrow up to $1.5 million dollars at a 5 year fixed rate at 3.625%!”

Holy moly really?  You mean little old me, just like that can borrow that much money at that low of a rate?  “So what’s the catch?”, I ask.

“Zero points, and $2,500 in closing costs.  But don’t worry, we are giving you a $500 credit for being a preferred member, and frankly, if you guys both take out loans, I’ll throw in another $500 credit,” said the banker.

“Done!  Where do I sign?, I ask as I think about the new Audi R8 I plan to buy with just $150,000 of the $1.5 million.  Or maybe I should be more conservative and spend $100,000 on the new 2011 Porsche 911.  Or actually, I heard the 2011 BMW  335i coupe is coming out for only $55,000 this fall.  With all the money “saved”, time for a bachelor’s trip somewhere fun!  (I’m still thinking to myself here).

NOT SO FAST FOOLIO! Read more…

The beauty of an economic downturn is cheap credit.  It’s ironic, because cheap credit is one of the main causes of this collapse in the first place!  That said, for those of you with mortgage debt, now is a great time to call your local bank and check up on rates.  Refinancing can be a daunting process, but it shouldn’t be with the right representative and proper frame of mind.

I recently refinanced one of my rental properties and now is a good time to share with you some key things to think about and assess.  Hopefully by the end of this article you will be able to make an informed decision and save lots of money as a result!

INFLATION

Knowing when to refinance is like being a bond trader.  Bond traders obsess over inflation assumptions, and you should have at least a basic assumption as well.  Clearly, there has been tremendous monetary expansion recently, which should ultimately lead to higher inflation.  Basic economic theory says that for every new $1 dollar bill printed, there will be a $1 increase in prices in the overall basket of goods eventually.  The key word is eventually, which could be decades away.

People have been waiting for higher inflation, and therefore higher rates for the past decade.  Ironically, those with short-term fixed mortgages (ARMs) are this century’s winners, because rates are resetting at equal to lower levels than when they were originally fixed!

Inflation has been coming down now for over 25 years, and I see little reason to expect inflation to suddenly jump higher given the tremendous output gap in the economy.  If inflation does start rising, at least you know that your assets are by definition also rising in nominal value.

The figure to watch is the 10-year US treasury yield.  Currently at 3.4% 2%, the yield is hovering close to the lows of the past decade.  Meanwhile spreads between treasury yields and bank mortgage rates have narrowed since the crisis.  Most long term duration mortgages are related to the 10-yr bond yield, hence whenever you see the stock market crashing,watch bond prices rise, and yields fall.  This is the exact time to call your mortgage broker.

DURATION Read more…

“The New Rules For Mortgages” by Dale Siegel provides a fantastic understanding of everything you need to know about mortgages.  For many, a home is the single biggest purchase of their lives, and the mortgage is a necessary instrument for making homeownership dreams a reality.

Qualifying for a mortgage is daunting, but it doesn’t have to be under Dale Siegel’s guidance.  After all, who’s better to give instructions than the president of her own mortgage company?  It’s important to highlight that Dale truly tries to provide readers knowledge about mortgages and doesn’t use her book as a sounding board for her company.  The book is like a secret weapon for first time home-buyers who dare tip-toe past enemy landmines.  The enemy is the industry which has adeptly blown off many appendages via exotic liar loans and oh-too-high fees. Read more…