Couple close to retirement mulls refinance
Q: We borrowed $355,900 in 2007 for a 30-year fixed mortgage at 6.25% and still owe $230,000. My wife is retired, and I plan on retiring in May 2023. Normally, we wouldn’t even bother with refinancing this close to selling the house; but the rates now are so low that we’re thinking refinancing might make sense. Any thoughts on whether it would be OK to refinance, or just leave it alone this close to retirement and selling the house?
A: We’re having trouble imagining why you’ve kept this loan, when interest rates have been below that level for at least a decade. Even if you had credit issues that prevented you from benefiting from historically low interest rates 13 years ago, it’s hard to imagine you haven’t been able to raise your credit scores enough to qualify for the postGreat Recession interest rates that have been widely available since.
So, let’s do the math: You are 13 years into your loan, so you still have 17 years to go before you are debt free on your home. If you were to refinance your loan today, you’d probably cut your interest rate in half, if not more. With the information you gave us, we’re going to assume you’re paying about $2,200 every month on your loan.
If you were to choose a 10-year loan at an interest rate of 2.125%, your monthly payment would be $2,120 with around $1,500 in points and fees. If you chose a 15-year loan at 2.125%, your monthly payment would drop to just under $1,500 and you’d pay around $2,200 in upfront fees. You may find even lower rates than these, so you’ll have to shop around and see what you’re offered. All of these mortgages require a credit score of 740 or higher.
While your payment is about the same, you’ll be paying down your mortgage far faster than if you stay the course. Imagine taking a wad of $100 bills and lighting them on fire. Wouldn’t you rather have those in your bank account?
Refinancing now is a win-win for you. You pay off the loan a bit earlier than with your old loan, your monthly payment goes down slightly with the new loan and you’ll save a ton of money over the life of the loan; compared to keeping your old loan for the next 17 years.
We understand that you think this might be a lot of work when you’re going to sell the property in three years. Sure, there’s some work involved, but in three years you might have as much as $50,000 more in equity than if you don’t do anything. And anything can happen; you might find yourself living there for five or 10 more years and walk away with a home that’s essentially paid off.
Talk to four or five different lenders: online, a local bank, a local mortgage broker and a credit union, to start. No need to give them any personal information - just talk about what you’re looking for. Pull a copy of your credit history and score by going to each of the three credit reporting agencies (Equifax, Transunion and Experian), so you can answer the lenders’ questions and make sure you qualify for the best rates and terms available. Ask what each lender’s charges will be so you can compare costs on an apples-to-apples basis.
Finally, when you compare loans, make sure you understand what the lender is including as far as closing costs. Some lenders include real estate taxes and insurance escrows when computing your closing costs, but don’t focus on those unless every lender you talk with is including them. You may have escrows with any lender you choose, but you can think of those escrows as your money that you are giving to the lender to hold for you and for the lender to later use to pay real estate taxes and homeowners’ insurance bills down the road. Focus on what out-ofpocket expenses you’ll pay and what it will cost you to close the loan with the closing attorney, settlement agent or title company.
The best way to look for a house in another state
Q: Can you give me any advice on how to make it easier to look for a house when you live in a different state? I live almost four hours from the location I want to live in and by the time I make the drive, the houses already have pending offers. I thought I might just drive there and wait a day for an interesting listing, but I do not want to waste my time if nothing comes up.
A: The best way to look for a house when you are far away is to work with a good real estate agent in the town who understands your wants, needs, motivations and specific parameters (including price range, location and elimination issues).
You can certainly view properties on your phone once they become available, but you’ll need someone you can trust who can go to the property and tell you whether the property is a possibility or is worth the trouble of making a bid sight unseen.
Real estate technology companies have built many interesting options when it comes to experiencing a home online. You can see dozens of photos, a blueprint-like layout, videos, virtual tours and even 3D tours. You can use Google Street View to get a sense of what the street looks like and what the other homes in the neighborhood look like.
Even if you have an agent you trust, it’s helpful to have someone else you trust (perhaps a friend or relative that lives close to your neighborhood of choice) who can give you a different opinion of the property. If that isn’t an option, then make sure the agent is someone who can give you an unbiased view of the good, bad and ugly about a prospective property.
It sounds like you’ve seen a number of properties in the area - or maybe the market is so hot that the four-hour drive has prohibited you from seeing properties in person. If that’s the case, spend a weekend in the area and use it to tour neighborhoods and compare even the exteriors of homes that were for sale (that your agent has, hopefully, seen) so you can learn what true value looks like in your neighborhoods of choice.
Once you’ve done this, your agent will have a better idea of what you’re looking for and how they can help you achieve your goal of buying in that neighborhood.
The next step is being comfortable enough with neighborhoods, housing stock and your real estate agent to bid on a home sight unseen. There are some buyer contracts that would allow you to bid on a home with the condition that you must approve the home once you see it. At least that gives you an out if the home fails to meet your minimum expectations.
Between the research you do online and in the actual neighborhood and working with a good real estate broker or agent, you may eventually make an offer and close on the right home without racking up the miles on your car. Good luck.
Contact Ilyce Glink and Samuel J. Tamkin through her website, Thinkglink.com.