January 2011 Vol. 6 No.1

• Hannah and Dominic's Refinance • January's Home Value Improver • About Us

Hannah and Dominic's Refinance

My phone is ringing off the hook with questions about refinancing. Everyone has a different question. What about jumbo loans? How low will the rates go? Is it worth the closing costs for me to refinance?

Hannah and Dominic, clients of mine from Newton, MA, faced several refinancing challenges: a jumbo loan, a high home equity line, and a real financial need to reduce their payments fast. I talked with the couple last week about their situation.

Q. What was your PITI payment before you refinanced? How did that work for your family?

A. We paid just about $4,000 per month. The payment was getting very difficult for us. We have three young children, and only one income. Our kids are involved in expensive activities: one daughter requires a weekly private tutor for learning issues, another is a competitive gymnast, and our youngest goes to preschool five mornings a week. With those kinds of expenses, we often turned to our home equity line of credit (HELOC) and now owe the bank $100,000 for that. We felt like we were sinking and had nowhere to turn. Refinancing sounded like a natural solution, but we didn't think it was an option since we have a jumbo mortgage - a mortgage of more than $417,000.

Q. When did you buy your home, for how much, and at what interest rate?

A. When we bought our home in 2004, the market was so hot that we kept losing any house that we bid in the $700,000 range for. So we moved up to the next price range rather impulsively and got an interest-only mortgage with a low rate of about 4.5%. Our home cost $826,000, and we put down a healthy $340,000. Our mortgage was $426,000. Our PITI payment at that time was about $3,000, which was OK, but we weren't making any progress on our principle.

Q. Did you refinance the interest-only mortgage quickly?

A. Yes. In 2005 we switched to a 30-year fixed mortgage. We got a rate of 5.75%, which we were happy with at the time. While we were refinancing, we paid off some expenses and increased the amount our mortgage to $500,000. This is how we got to the $4,000 PITI payment.

Q. How did you decide to refinance again?

A. Dominic works in finance, and it was driving him crazy to see the mortgage rates so low and not be able to take advantage of them. Our jumbo loan was keeping us back - or so we thought. We contacted Westchester Mortgage and found out about a program that allows you to refinance "conforming" jumbo loans. Any loan more than $417,000, but less than XXX may qualify.

We were so excited! Could we really get a mortgage rate as low as the FOURS?! We got a rate of 4.5%.

Q. Were there any obstacles?

A. Remember that pesky home equity loan? Well, we still owe $100,000 on it. We wondered if that would be considered part of our loan. Debbie explained that we could go ahead with the refinancing if the bank that held that HELOC agreed to "suborbinate" it, which means that the bank would have to agree to be second in line for our money, should we [shudder] default on our loan.

We did a happy dance around our kitchen when we learned the news. Our mortgage payment was going to decrease by more than $500 per month. The hole we felt like we were sinking into was going to get a little smaller, day by day. However, everything hinged on getting that subordination from Sovereign Bank.

Q. How did your HELOC get so high?

A. Naively, we expected real estate values to continue skyrocketing. We accessed the home equity for large expenses: an international adoption, lots of home projects, and to pay off a car loan. We assumed that because we had so much equity and the house value was increasing, it was like "free money" that would be absorbed into our equity quickly.

Q. How did the situation resolve itself?

A. We waited and waited. No word from Sovereign. The rates started coming up. We were heartbroken about losing out on the 4.5%, but kept the faith that the bank would get moving. After some nail-biting weeks, the bank finally produced our letter! We signed our papers over the December holiday vacation in our dining room. Our monthly PITI payment will go from $4,000 to $3,500. We plan to put that extra $500 each month toward our home equity loan.

Q. Why did you choose to work with Westchester Mortgage instead of a big bank?

A. That's easy! We were looking for personal service, since - like most people - we were dealing with the biggest investment of your lives.

When we call Debbie, she picks up the phone or returns the call really quickly. We know she can put her fingers on all of our mortgage information immediately. We've heard so many nightmare stories from friends who call banks over and over only to get put off or have their paperwork "lost" by someone in a big office somewhere.

When we closed on our refinance during a school vacation week, Debbie and the lawyer brought the papers to our house for a weekday morning closing. She knew we had kids at home and wanted to accommodate us. That kind of personal service goes a long way!

January's Home Value Improver

Three Steps to Prepare for a Power Outage

The recent snowstorm left thousands of people without power. If you were one of them, you know what a bummer it is to go without the electricity - and heat! - we are so used to. If you didn't lose power, you probably kept your fingers crossed that you would stay juiced. Should the lights go off right now, do you know where to find your flashlights? Is your mobile phone fully charged? If not, let's talk about some basics. Be prepared for a power outage.

Keep your cell phone charged.
Most of us have cell phones and don't need to be too concerned about the landline going out. But, you do need electricity to keep it charged, so be sure to do so before any big storm is coming. Make sure you have programmed the telephone numbers to the utility companies and anyone else you might want to call ahead of time.

Keep supplies on hand.

  • Lighting.
    Make sure your flashlights and back-up batteries are in a spot you can find in the dark. Better yet, keep them by your bed if a big storm is heading through. Battery powered camp lanterns are an even better investment.
  • Water.
    Need I say more?
  • Canned food and dry food mixes.
    Even if you have a gas stove, the pilot is probably electric. And, you don't want to start messing with fires.
  • Hand tools.
    In case you end up having to do some repairs, be sure you have some tools you can use without electricity.
  • Extension cords. Have enough on hand so that if you have to plug into your neighbor's electricity, you can.
  • First aid kit.
    This may seem like overkill, but you never know what you might need and you don't want to start fishing around under the bathroom sink for a band-aid in the dark.

Watch the refrigerator.
If you keep it closed, the refrigerated food will last a good four hours. The food in the freezer will last 48 hours if it's full, 24 if it's not. If you lost power for longer than four hours, be sure to toss the perishables.

If you want to be prepared for anything, keep an emergency bag at the ready. A friend of mine was in the San Francisco earthquake of 1989 and survived, though her apartment was flattened. The hardest part of her getting out of the area to a friend's home was that she had no glasses and no shoes. If it's possible to keep an emergency bag packed near your bed, do so.

Westchester Mortgage

Happy 2011!

I hope this year is a wonderful one for you, your family, and yes, your finances.

My clients often tell me that they think they are the only ones struggling with their mortgage questions, their cash flow and their financial plan. To illustrate how this simply is not the case, this month I am sharing the story of a Newton couple that I have worked with for several years.

Their names have been changed to protect their privacy, but I hope that their situation - and how we approached it - will provide some valuable insight into your own circumstances.

The key to remember is that no matter how challenging your situation may feel as the new year begins, there are thousands of others in the same boat. Make this the year you take charge and get your financial house in order.

I'm always here and happy to help!

Best regards,
Debbie Siegel
Westchester Mortgage

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