November 24, 2010

Asking Always Pays

Filed under: budgets,debt,money — by elysianconfusion @ 4:56 pm
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Well, I finally bugged my darling husband into calling our credit union to see if they could do anything for us. We’re in the lovely position of being at least not underwater on our house, but certainly not at 80%, which makes it really hard to refinance at lower rates (or fix already low ones). And our credit union services our loan (good), but that means it’s not a Freddie Mac or a Fannie Mae (bad, because then there’s no Making Homes Affordable for us).

I mentioned my distress last week, but now I have excellent news! The bank is sending us paperwork, fixing the home equity loans (together) at 4.99 (down from 6.5 on the big one and 4 but variable on the low one) for 10 years. This reduces our rate, our interest and our term. It does increase the payment by 54$ a month, but it’s TOTALLY worth it!

I think we’ll save about 5k in interest (without including snowball planning). Also, there is no penalty for pre-payment and there are no closing costs.

I was feeling so frustrated, because I already owe them the money, they should want to help me — and THEY DID! Hurray!

So, anyone out there thinking it’s not worth asking — you’re wrong. Even if you don’t get what you want, at least you know you asked!

Happy Thanksgiving!


March 19, 2010

What’s in an ARM?

I’ve heard lots of bashing of the adjustable rate mortgage (ARM) and honestly, I do get it… mostly. Except I feel like we got the best rate ever — in 2004, we got a 5/1 ARM at 3.875%. Now that’s a mighty sweet rate! I was totally freaked last year though, when the five-year fixed rate was coming to an end… what next? What would it be? Should we refinance? Could we refinance?

I’ve mentioned before that we’ve put a lot into our house. It’s the source of a good amount of our debt… our mortgage is only 17% of our gross monthly income, and 23.2% of our net. If you add in our home equity loans it’s more like 24.7% of gross and 33.5% of net. I guess the rule of thumb is not more than 28% of gross. So, shockingly I think we’re better off there than we should be. In *my* opinion our debt is insane.

Anyway. The time is approaching for our next adjustment (last year we got the letter with the new rate on March 25, and the rate went down! I was shocked, it actually went to 3.5%). So, today I was trying to figure out how they got the rate last time and what it might be this time.

Basically, ARMs are tied to an index, and you have to read your loan documents to figure out which index it is. According to mine, “The ‘Index’ is the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year, as made available by the Federal Reserve Board.” Then they add 2.75% to the current index. (It’s the index 45 days before the rate change (5/1/10), I think that’s 3/17/10.) I googled that, and I think I found it at http://www.federalreserve.gov/Releases/H15/Update/.  I think it’s the treasury constant maturities 1-year. I selected Business day — sounds like it’s the average? Or maybe it’s the weekly? Last year the weekly for 3/13 was .70, and that’s what they used in the letter last year… 2.75+.7=3.45, not 3.5 . It says they round up to the nearest 1/8 of one percentage point (0.125%).

This year the weekly for 3/12 is .39, so .39+2.75=3.14 — I have no idea how they’re planning on rounding that. I may have to ask.  If only I could fix 3.14% we’d save $5,485 over the life of the loan (that’s in my version, not the 24 years remaining on the loan).  Of course I can’t fix this rate. My credit union is nice, but not that nice! But I have to say, getting an ARM seems to have been a reasonable decision for us. An ARM at 3.875 means that our rate can’t go up (or down) more than 2% per year, or more than 5% ever, so it could never go higher than 8.875%, and as I’m searching for the national average contract mortgage rate (1963-2009) it looks like it started pretty low in 1963, at about 6%, peaked in the early 80s near 15%, and is down to about 5% right now. Overall, our max rate looks to me to be under the curve, so I’m not going to worry (for now) about refinancing and all the costs that brings. (Plus the stress of worry whether we’d qualify — this housing market is awful.)

It will be fun to get the letter and see if I’m right!

March 11, 2010

Cutting Costs

Filed under: debt,money — by elysianconfusion @ 12:09 pm
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I worked really hard last year to cut our costs when I started this quest to be debt free. I actually did pretty well. We cancelled cable. We cancelled house cleaners. We got rid of a car. We reduced our insurance. We created a budget that we follow fairly well.

Still, there has to be more to cut, right? Well, there was. We decided that two cell phones and a home phone was too much, so we cancelled Vonage. Savings? About $33 per month. I also called my internet company. Cutting internet isn’t an option, it’s required for my job and they reimburse me for it. You’d think this might make me less motivated to reduce my bill. In fact, no! I still want a lower bill. We were paying $73.25, which seemed insanely high to me. Part of the reason this bill is high is that we’re not bundling any other services with it. Standalone services just cost more these days.  There’s also no competition in town, so it’s hard to pit companies against each other.  I wasn’t too confident, but I called anyway and was pleasantly surprised. I told them I wanted to reduce my bill, and they were able to cut it to about $42.94 per month, saving me about $30 month. Total time on the phone for both, about 30 minutes. Total savings, about $63 per month, or $756 per year. Want to try it yourself? Here are some tips from ehow: http://www.ehow.com/how_5944537_lower-cable_-cell-internet-bills.html.

So perhaps I was feeling a little empowered. I logged into my local credit union, and they’d reduced my APR from 8.5% to 7.25%. My balance is actually zero there, but still, what a delightful surprise! So naturally I called my UPromise account with Bank of America to ask them to reduce their rate (11.15%). They put me on hold and came back with a 9.9% (ok, only 1.25% but still!) and that brings all our rates below 10%. They also suggested that my account would go under review in April, and thought my rate might go down again. So I was advised to watch my April bill and if the rate *didn’t* go down, I should call and ask about it again.

So far I’ve avoided transferring balances hither and yon because I find it stressful, and it’s been hard to find an account that had enough room to transfer a balance to get a better rate. However, with my credit union balance at zero and the lowest APR there, I may well try to work this angle next.

I’m delighted at how much I’ve saved with just a few phone calls — has this worked for you?

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