I must be mad, because after multiple mortgage refinances, I’ve decided to take my own advice on improving my cash flow further by trying to refinance my mortgage again! I say “trying” because getting a mortgage or refinancing a mortgage is still not a slam dunk like it was pre-2007.
Lending standards are strict with ~729 being the average credit score for denied mortgage applicants. Furthermore, my debt-to-income ratio could be a problem because 100% of my 1099 (freelance income) won’t count for 2014 because banks require two years of 1099 income, and I’ve only got 14 months worth.
Can you believe that? Even if I made $800,000 in freelance income over the past twelve months, big banks would still disavow all of it and likely reject even a small mortgage refinance amount if I had no other income. Banks should discount 1099 income by some amount, but not by 100%. There’s a growing misconception now that full-time income is more stable. A full-time employee is betting on one horse. An independent contractor can bet on multiple horses.
Now is absolutely the time to refinance because the 10-year treasury yield has fallen below 1.8% (1.68% as of 2/2/2015). We’re back to all-time lows. Volatility is up, collapsing oil prices are stoking fears of weak global consumer demand, and chaos reigns once again in Europe. I’m glad there isn’t anymore US government shutdown drama at the very least.
I’ve got two years left on a ~$1 million dollar jumbo 5/1 ARM at $4,338 a month at 2.625%. My goal is to refinance this puppy down to a 2.25% 5/1 ARM at $3,822 a month, for a cost of less than $3,000. The annual interest savings is $3,750, and the monthly cash flow increase is $516 or $6,192 a year. That’s a good move towards my unwavering quest to generate $200,000 a year in passive income.