Become A Mortgage Refinance King Or Addict To Save Money

Refinance Documents On The BeachThere are two things I love about personal finance: 1) Making money and 2) Saving money. Both require effort, which is one of the key themes on this site. Money isn’t just going to start falling from the sky. You’ve got to work harder than everyone else, come up with better ideas than everyone else, and produce more than everyone else to make more than everyone else.

The great thing about making money is that it is often NOT a zero sum game. You making more doesn’t mean someone makes less. The pie is enormous and there is no monopoly on becoming rich!

The perpetual decline in mortgage interest rates has been an absolute boon for many. Anybody with a loan-to-value ratio of 80% or lower should be able to lower their mortgage rates quite dramatically. With a full 30% of my net worth invested in real estate, I’m maximizing the ideal mortgage amount to shield myself from taxes and keep the perpetual cash flow going once I’ve lost all energy and desire to make money on my own.

My interest payment on my primary home mortgage has literally gone down by 50% since first buying my primary house eight years ago (~5.5% to 2.625% interest rate). Meanwhile, the house value has realistically increased by roughly 10%-13% thanks to a flood of innovation and jobs in the Bay Area. During the bubble, the house was probably up by as much as 25%, but alas, those ridiculous valuations were unsustainable.

Reducing debt doesn’t take as much effort as making more money. That said, reducing debt does necessitate action. The only debt I have is mortgage debt, because years ago I paid off my student loans from business school and I never carry a revolving credit card balance. Right when Bear Sterns blew up in 1H2008, I became acutely aware of my mortgage debts across three different properties and the risks of not managing such debt properly.


Making more money was straightforward from 1999-2009 because I was going through the growth phase of my career. If I was just an average worker and survived for 10 years, I would see a steady pay increase. This is the case for almost everybody I know.

Saving money was also straightforward. Ever since my first job in NYC, I decided to save 50%+ of my after tax paycheck because I didn’t expect to survive for long in finance. A 50%+ savings rate was therefore automatic and required no action after the first year.

What did require action and lots of patience was refinancing my largest debt, my primary home mortgage. I would have been perfectly happy with my initial mortgage until I realized what the Fed was up to.

2004: New house purchase. 30-Year Fixed at 5.5%. Soon I realized how stupid it was to pay 5.5% for a mortgage when there were much cheaper rates out there. I am a big advocate of borrowing at a 5-year adjustable rate mortgage over a 30-year fixed. The article goes into detail as to why.

2005: Mortgage refinanced to a 1-month Option Arm at 1.25%. Went from one extreme to another. My payments got slashed by more than 70% and I was loving it! The 1 month loan followed LIBOR.  I wish these loans were available to all again instead of just Mark Zuckerberg, who I don’t understand why he has a mortgage at all.

2007: The economy and the stock market are on fire and rates are inching back up. I feared having a mortgage rate based on a 1 month index like LIBOR could really screw me over if inflation started rising. As a result, I refinance to a 5/1 ARM at 4.125%. At the time, I was paying an interest rate of around 3.5%. What a big mistake!

2009: The world is now ending and 5/1 ARMs have fallen to 3.625%. I immediately jumped on this refinance since 3.625% was a nice 0.425% lower than my existing loan of 4.15%. Refinancing to this level was the one good thing that resulted from such an economic meltdown.

2011: With the Fed’s announcement to keep rates low until 2013 and their Operation Twist strategy to make sure long rates don’t rise, the 10-year yield plummeted to around 1.85%. I did a no-cost refinance of 3.125% in the Fall and thought I was absolutely done for sure! I extended my lock for another 5 years and planned to live in my house until the rate expired in 2016 and reconsider.

2012: Rates continue to go down even though the markets recover from their 2011 summer malaise. Europe starts imploding again and there is a flight to safety in US dollar denominated assets, including US Treasuries. The US Treasury 10 yield yield drops to below a record low 1.5X% for a brief period. I call my mortgage officer again when the yield rebounds to 1.7% and he tells me I can now refinance no-cost to 2.625%! Banks start lending aggressively again, accepting smaller margins to win market share. Despite taking forever to refinance, I’m happy I did because my interest payment is now 50% lower than when I first bought my house. Meanwhile, rents have risen by 50% in the same period!

2015: I’m back to refinancing again! Turmoil in Russia, low oil prices, depegging of the Swiss Franc, and volatility in the stock markets have led to a tremendous decline in the 10-year government bond yield. Last I checked on 1/20/2015, the 10-year yield was down to 1.85%. I believe interests rates will stay low in all of 2015 and I’m doing my best to lower my 5/1 jumbo ARM at 2.625% with two years of fixed rate left to 2.25%. The key is to get my debt-to-income ratio below 42% given I’ve only got one year of 1099 (independent contractor) income, and banks require two years. I’m using LendingTree Mortgage online to get banks online to compete for my business and give me the best rates. It’s free and easy to use. Simply fill out the relevant information and a bunch of lenders will contact you with offers.

The mistake: In retrospect, my error was getting shaked out in 2007 by the rise in rates. If I just sat tight, I could have saved myself tens of hours and thousands of dollars in baked in refinance fees because my rate would be the same or lower. That said, I do find comfort knowing my mortgage rate will be fixed for the next 5 years. As someone who is now retired, having a fixed rate of 5 years makes the appreciation even more.

The bad: The entity who makes money in all my refinances is the bank. Although all my refinances have been “no cost, no cash outlay” refinances, the fees the bank earns are embedded in my rate. In other words, I woud get an even lower rate if I didn’t have any fees to pay. That said, everybody wins in this scenarios because I’m still getting a lower rate.

The good: The average spread of my shorter term fixed rate and that of a 30-year fixed rate was roughly 1.5%. At every refinance after my initial mortgage the rate was lower. Given the ideal mortgage indebtedness if you can afford it is $1,000,000 ($1,100,000 if you include a HELOC), the average savings a year is therefore 1.5% X $1,000,000 = $15,000. Multiply that by 8 years and that equals $120,000 in interest savings by borrowing at the short end of the rate curve and refinancing.

The real good: If all I did was sit tight with my 5.5% 30-year fixed from eight years ago, I would have end up spending more than $200,000 in interest in eight years. Thankfully, I didn’t just sit on my hands and do nothing. The combination of refinancing and borrowing on the short end of the curve has saved me over $200,000 in mortgage interest in the past eight years. That is some serious money!


Saving money on your mortgage isn’t going to just happen. You’ve got to make it happen.

1) Call various banks and mortgage brokers to get quotes.

2) Understand the terms of each quote thoroughly e.g. interest rate cap, principal and interest split, reset period.

3) Drive over to the bank or mortgage officers officer to discuss the terms and sign the papers

4) Host an appraiser for 5-30 minutes each time so that the bank knows their collateral value.

5) Call back multiple times to see how the process was going.

6) Gathering W2s, bank statements, proof of employment, proof of insurance, credit clear letters.

7) Meeting with a notary to sign 50+ pages at a time.

8) Set up online payments and make sure the payment process worked.

You’ve got to be on the ball and push things through! If I live in my home for another 10 years, that’s another $150,000-$200,000 more in interest savings at least vs doing nothing. Picking up the phone, making photocopies, and trading e-mails isn’t exactly hard work.


Since 2004, I’m happy to hear the emergence of online mortgage loan companies streamlines the process and makes it much easier to refinance.  Everybody knows that doing things online is a much quicker way to go vs. doing things in person.

Now that I have a personal finance blog, I don’t need to call around or talk to anybody anymore because I get a heads up as soon as a rate looks favorable to me. Representatives from mortgage companies tell me when they have a special. I’ve got a mortgage rate widget that tells me what the lowest conforming rates are. And, I trust the specific offers that I highlight because I’ve used them and clients want to offer their best products otherwise they will get bad reviews.

Yes, I may be addicted to refinancing my mortgage, but that’s because I’m addicted to saving money! The actions of the Fed and the state of the global economy have allowed many to refinance and save. If you are not at least checking for the latest mortgage quote online, you are likely leaving some serious money on the table. If I didn’t check the Spring of 2012, I would have lost out on an additional $20,000 in interest savings over the next 5 years!

Make money and save money.  Do that long enough and you will be in great financial shape down the road.


* Shop Around For A Mortgage: LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. The Fed is signaling interest rate hikes by 2016 due to inflationary pressures now. When banks compete, you win.

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Updated 2H2015

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. Mike says

    Well, at least you got the lesson of how to manage a mortgage! It’s not the best way to learn that it can be a headache. But it’s good that you have the awareness of that process at the moment!

    • says

      You are correct! If you only have a $60,000 mortgage, the refinance fees are a killer. The banker doesn’t have as much to bake in the costs in your mortgage ironically.

      I’d just look on the bright side and be happy you only have a $60,000 mortgage! :)

      Just note that if you can increase your income to afford a $1 million mortgage, that is where the max benefits happen thanks to the government. I’m assuming you just claim a standard deduction?

  2. Freeat33 says

    Samurai – Did you have to pay any early cancellation fees, lawyer fees etc. I know that most of the time these can be negotiated out, but often if you are loan hopping as you are, they may see this as a fee you should cover. If so, did you counter this cost in your assumed savings? Also, I understand your eagerness to save. My family also started at 50+% savings, and as our income has grown and our expenses have grown at a slower rate, we are now 78% savings this year. Three cheers…. This is Net of course. I feel like paying debt is an awesome strategy for increasing net worth. Like you mentioned, it is easy, and having debt ( Used to invest ) is powerful towards using compounding interest on your side. Further, for me at least, I Dislike having debt and find it easy and rewarding to make double payments and lump sum knock offs the principal. That is how I paid off all our debt at 28. The trouble happens when people start borrowing for vacations and cars. That is a completely different topic though. Thanks for the article.

    • says

      Good question. Out of all these refinances, I did not have to pay any extra fees because they all went through. I wanted them to all go through because they were saving me money or giving me more peace of mind.

      Four of the refinances were with the same bank, so it was easy. The last one just took a long time.

  3. says

    Our primary residence started at 6.25% and we refinanced to 5% in 2009. We refinanced again last year to 3.25%. I got a letter from my bank stating that we could refinance again to 2.5% but it wouldn’t be worth it at this point since our house is set to be paid off in 3 years.

    We refinanced both of our rental properties this year. One went from 6.5% to 4.5% and the other went from 6.25% to 4.75%.

    All of it was a no brainer~!

  4. Virginia says

    “You making more doesn’t mean someone makes less. ”

    I hope this isn’t off topic but you could do an entire article on this. In my experience, a lot of people feel that the opposite of this is true (if a person makes a lot of money, they must be taking it from someone else).

    I recently had a discussion with a friend who had some friends who wrote an algorithm to pick stocks and trade them in high frequency. These people became very rich. I would argue that they are (in some ways) taking wealth from me. When I buy my S&P500 stock and hold onto it for 20 years, I’ll end up selling it for 200% returns instead of 300% returns because these people are taking value out of the stock market. by exploiting inefficiencies.

    • says

      Sure, I was planning on writing such a post.

      If people have the mentality that other people making more money means they are making less money, I’m pretty sure these people will never be wealthy. That is a self defeating mentality.

  5. says

    My story is similar, except it was fixed all the way. A 7.625 30 year, and the last refi was for 3.5% 15 years. The interest burden is 1/4 what it was as we were prepaying along the way, so at the 15 year mark, it’s normal to have nearly 3/4 your initial balance remaining, we are at half the original loan.
    At 3.5%, I’m not in a rush to pay this off. I prefer the cash flow.

  6. says

    Looks like a sound strategy sam – I’m curious as to whether or not it would help me because I just started my note and have 20% equity, and I got a 3.375 rate over 15 years – the payment is already plenty low, and I dont really want to go through a refi less than 6 months after the loan was generated.

    • says

      It all depends on the cost of the refi. If it is a no cost refi where you have no cash outlay, and can lower the rate to 2.75% or lower, then it is a no brainer. What’s a little e-mailing and waiting to save you money?

  7. Jason says

    I had a chance (and support) to buy in 2003 in Southern California, and I held off.
    The main reason was I wanted to be mobile, in case a business opportunity came about.
    But since then, I have continued resisting buying property.
    I would like to buy investment property, but my main real estate mentor keeps saying, “The first place you buy should be something you can live in!”
    But there are other reasons:
    1) I do not like paying property taxes
    2) I do not like paying common charges / HOA fees
    3) I do not like paying a large down payment.

    Mathematically speaking, I can rent a decent place in NYC for $2000-$2500 per month. If I were to buy a studio, I would probably pay $500,000. That is $2900 per month. But look at the additional costs:
    – $600/month once the tax abatement expires (~6 years)
    – $100k required up front (money I cannot invest elsewhere).
    – A lack of mobility if I want to move to another city, or take six months traveling throughout say SE Asia.
    – A 6% off-the-top cut to agents, if I ever want to sell it.

    I just haven’t been able to get the numbers to work in my favor, in terms of buying.

    • says

      Can you really find a decent place to rent in Manhattan for $2,000-$2,500? Are we talking studio here?

      My thought is buying is a no brainer. From the $1 million of mortgage indebtedness tax deduction to a play on inflation to the ability to build long term generational wealth.

      Just know that you really want to be in the one place for 10+ years, because the median homeownership duration is TOO SHORT to build real wealth.

      • says

        Yes I can find good places in Manhattan for that range. Currently, studio with a balcony. A year ago, I had a 1-bedroom for $2100/month in the upper west side. Both places would probably list for $600-$700k, if I wanted to buy…so my purchase numbers were conservative.

        I just don’t see how dropping $100k up front, paying 1.5x the price of rent per month, and putting myself through the pressure of having to work every single month, is a no brainer.

        • says

          Didn’t realize NYC was that affordable now! Lots must have changed when I lived there in 99. I think the one bedroom I shared cost $2,100 back then!

          You can’t see the benefit now because you’ve never owned and it’s now. 10 years from now you will be amazed at how cheap your mortgage vs rent is.

          What’s your guaranteed return on 10 years of rent payment?

        • Jason says

          Guaranteed? nothing is guaranteed. Japanese real estate has been going down every year for what, 20 years now?

          But take the $100k, compound it by 8% over 10 years, and contributing $1,400 per month (what I am saving by renting not buying), gives a total of $479,796.01.
          By way of comparison, a $500k studio, growing by 5% over 10 years, and subtracting the obligatory 6% commission at the end, gives a total of $772,712.73.

          So perhaps owning is a smart idea. I have been considering it for a long time.

          The risks are that NYC could go underwater, or the USA could go into a recession from which it never escapes, and I might want to move to another city or another country (the last is most likely).

          The perks are I could really do what I want with the place (which I can’t when I’m renting for 1-2 years), and if NYC real estate swoons, it will be worth much more than my figures suggest.

          1999 was a funky time, with the dot com / silicon alley craze. I was in the east village and rented a tiny room for $640/month. Perfect when working at a startup…..

          • says

            Definitely don’t own if you don’t want and can’t afford it. It sounds like buying just a studio is going to cost you more than 50% of your cash savings or net worth? I committed 30% of my wealth to RE.

            Renting is perfectly fine. I’m just giving you mine opinion from the past ten years of ownership that despite the cycle, it’s been a financial homerun. When your interest and property taxes are X and your rental income is 3X thanks to inflation and demand, you are a happy man. It is important there are renters for landlords to prosper, and landlords for renters to find shelter. A symbiotic relationship.

        • Jason says

          I knew I was missing something.
          You have to subtract the $400,000.00 remaining principle from the sell price. Maybe a little less, let’s say $350,000.
          So your “net worth” from this exercise, when buying, is $322,712.73.

          So according to this, renting looks like the financially smarter move.

  8. says

    This certainly makes sense if you are going to stay in your house for at least 3-4 years. If you perceive a sudden rise in the value of homes in the Bay area, and decide to sell your home in less than 4 years then you may not gain much due to the fact that mortgage reset puts a brake on your equity build up. You always pay more in interest in the first 5 years or so.

  9. says

    I think I’ve mentioned it before and all of these were/are fixed rates: 2000 was at 8% and 30 year note. Then 2002 was at 6.125% and 30 year note, then 2006 at 5% and a 15 year note, then in 2010 at 4.125% for 15 year note.
    Each time I believe the fees were roughly $2,000/
    If I could get in a sub-3% note for 15 years fixed, I’d consider it as long as fees weren’t high.

  10. Darwin's Money says

    I’m all about the no-cost refi. With today’s rates in the basement, chances are the extra quarter point or so you may give up to waive all the fees still makes sense, so you have best of both worlds – no out of pocket expense and a lower rate.

  11. says

    Sweet job on all of your refinances. I think I finally convinced my mom to refinance her mortgage, which reminds me I need to go follow up with her. It takes a lot of time and work to refinance but it’s so worth it when the terms are good.

  12. says

    I’m going through my second refi right now. Rates just keep sliding! The bad part, my home value keeps dropping too. I’ve been here about 4 or 5 years and in both refi’s I’m having to pay up my principal to get back to 80%.

  13. says

    You did a great job with refinancing in all your scenarios, however, I’m curious did you have to pay a penalty for refinancing early? Here in Canada, mortgage penalties (depending from one institution to the next) can be high, so sometimes to refinances for a lower rate before your mortgage expiry is not worth it.

    I’m slowly looking into getting my mortgage refinanced. Currently pay 3.5% amortized over 30yrs on 5yrs, and have about 16 months remaining. Now the mortgage rules changed, and the max I or anyone can amortize for is 25yrs. However, I’d be looking to get into a variable, because you can get as low as 2.75% or so.

    • says

      Good question. All but one had a prepay penalty. The one with a prepay penalty was 12months (the one month Libor), but I didn’t refi until after 12 months. I shoulda just kept that one though, but rates were jacking higher in 2007.

      3.5% is a good rate! No sweat amortizing over 25 years with the lower rate. I can’t imagine the payment to be much different.

      • says

        You’re absolutely right – I don’t think the 5yrs will make a huge difference on the bi-weekly payment, but again it’s something I need to keep in mind.

  14. Boy Engineer says

    Your start the article by assuming a Loan-to-value ratio of 80%. What advice do you have if it is (significantly) higher than that? Just suck it up and pay out of pocket to get away from this 6.5% fixed rate?

    • says

      There are some options out there now through HARP or HAMP that allow you to refinance with no appraisal (with your current lender). Others allow up to 125% LTV.

      Depends if your loan is fanny or freddie..

  15. says

    One thing I’ve always admired about you is that you actually crunch the numbers. Most people rely on rules of thumb…I hate when people say “if you’re not dropping your rate by more than a point, it’s not worth it!”

    Those people don’t deserve the savings…

  16. Mike Hunt says

    For some reason whenever I look at this picture (from the top of the post) out of the corner of my eye while reading the text, I see an Arab Sheik walking along the beach. Does anyone else see this?


  17. says

    We recently refinanced (again, after refinancing just 11 months prior), and there wasn’t a penalty per se.. other than paying the closing costs again. :)

    But yeah, we ran the numbers and expect to save around 50 grand in interest costs going from a 20 year at 5.25 to a 15 year at 3.375. Not bad at all…

  18. says

    With the drop in rates The Wife and I have found that despite selling our home and buying a bigger home (probably double in value) the mortgage payment is about the same! Nuts.

  19. says

    I’ve refinanced 2x so far.. From 30 to 15 and from 15 back to 30. The rates are just so low.. I had to take advantage of them. I think people are crazy not to refinance and take advantage of these low rates.

  20. James says

    Now more than ever should people be getting mortgage quotes, home loans, and refinancing rates. All they have to do is just a little research to find out how they can improve their payments in this economy. Mortgage rates are lower than they have ever been, people should take advantage of this!

  21. Brian says

    I’m currently 4.5 years into a 7 year arm, tied to LIBOR, currently at 5%.

    I’ve got approval to refinance through HARP, 30 year fixed at 4.25%. I’m about 20% underwater, so don’t really have any other options.

    Do you think I should move to the lower rate for now, or hang on, roll the dice, and hope the LIBOR stays low when I finally reset in 2.5 years?

    • says

      Is it a 7 yr fixed based off LIBOR? LIBOR is at rock bottom levels now.

      Since you are approved for HARP and are 20% underwater, I would go with that at 4.25%, especially if there are no costs. 0.75% savings is 0.75% savings for at least the next 4.5 years.

      I think rates stay low for a while though. If your loan gets to float in 4.5 years, your rate maybe drop to as low as 2-2.5%! B/c 5% is way high in this environment imo, I would just get the sure thing and refi now.

      • Brian says

        Yes, it’s based of LIBOR, + 2 (or 2.25%). It resets in 2.5 years, but I agree, I think the saving now is better than waiting, and maybe there will be better opportunities to refi then.

        I wish I wasn’t underwater, I could refi into a 5 or 7 year arm in the 3s!

  22. Celia says

    Love your blog! I am in the process of refinancing my investment property in San Francisco, and was wondering if you can share the contact info for the loan officer you use at citi. Thanks!

  23. Shanngo says

    Hi Samari!

    I currently have an $300K FHA, 30-yr Fixed, at 3.5% rate, acquired in 2013. Does it make sense for me to refinance right now? I keep getting these offers in the mail to refinance, with the possibility of lowering my insurance costs. What are your thoughts? I am really not aware of what options are best and though I am willing to do the research, I need to speak to someone that knows what they are talking about..


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