Recast, Refi, or Modify: 3 Options for Adjusting Your Mortgage

Like so many folks, my wife and I wanted our dream home. It was going to be our last, so we wanted it to be laid out a certain way. We were going to build on family land and spend the rest of our lives there, so we drew up the plans and put the wheels in motion. With that, we had to obtain financing.

That was 2006.

My wife and I did as many folks have done, we got a 30-year mortgage. We also got a 6.75% interest rate, with zero down.

Yep, that was back when rates were higher and I wasn’t as smart as I am now. Over the years we’ve put enough away to pay off the mortgage and we toyed with doing just that. But, when I ran the numbers on the percentage of portfolio growth (8+%, annual average) vs the 6.75% that we’re paying on the mortgage, it didn’t make sense to pull that much out and lose the earning potential.

I decided that I really wanted to shorten our loan and reduce the interest rate as I’ve learned a bit in my blundering through the world of Personal Finance. Took me 10 years to figure out how much we would save by going to 15 years (We have almost 20 years left on our 30-year mortgage) and dropping the interest rate.

So, we started looking into options.

I logged into Lending Tree Dot Com and applied for a refi. Offers started coming in and we decided to go with one that was appealing. 3.75%. Six points lower than our original loan.

I ran the numbers and calculated that we’d save almost $90K in interest. 90K! That’s a chunk of cash. Definitely worth pursuing.

“Houston, we have a problem.”  Turns out the lending agency we chose doesn’t deal with rural land, and after shelling out for a survey and an appraisal, we were dancing around how many acres they could tie into the lien.

On top of that, we were told that we might not qualify because we’re retired, and they said our Income to Debt Ratio was pretty close. Hmmmmm.  We bring in almost $6K a month, take-home, but because we have a bunch of deductions, our adjusted income doesn’t reflect it and it looks like our income is much lower than it is.

After almost 2 months of trying to refinance the house, I decided to call our bank and ask about options.

The delightful loan officer shared some interesting info. I was familiar with refinancing and knew a little about recasting but was not expecting to hear about modifying our original loan. Turns out we had three options available.

Here they are.

RECAST THE LOAN – Recasting a loan only makes one change to a mortgage, lower monthly payments. It all boils down to making a large one-lump payment towards the balance on the loan, thus lowering the balance due. The payments are then adjusted for the remainder of the loan.

There is no change to the interest rate, nor is the length of the loan changed, just the payment amount.

Now, if you have a large chunk of capital sitting and want to reduce your payments, this is an option. Great thing about it, there is no qualification process, not appraisal needed, no title insurance, etc.  That’s all done with the original mortgage so it’s not necessary in this case.

Since recasting would only lower our payment, it was definitely not what I was looking for.

REFINANCE THE LOAN – In refinancing a mortgage one obtains a new loan to pay off the first. This can be as simple as borrowing the exact amount owed on the original mortgage and changing from a 30-year to a 15-year loan, or one can also cash-out equity and pocket some money for improvements, paying off consumer debt, vacationing, etc.

In doing so, one can lower the monthly payment or increase it. That all depends upon the details of the loan.

I’d been hearing about refinancing for a long time and figured that this was the option to go with. As I mentioned earlier, I logged into Lending Tree Dot Com and we filled out an application. We simply wanted to pay off the original loan, reduce the interest rate, and the length of maturity. We didn’t want to pull out any cash, so I thought it would be a simple process.

Wrong!

We received an offer accepted it and then began the drawn out process. Since this would be a brand new, 15-year loan, we had to go through the whole ordeal that we did when we built the house. Application, survey, appraisal, qualification, title insurance, a title search on the land, etc.

It was a pain, then we got word that we might not qualify because of our Income to Debt Ratio.

Great! Now, even with the money spent on the survey and appraisal, we might not get to refinance. With that, I decided to call our bank. That’s when I learned about modifying our mortgage.

MODIFY THE LOAN – Modifying a loan is a neat option, but it’s not without limitations. Basically, you contact the lender that holds the original note and see if modifying is an option. If it is, you’ll be able to make the following changes to the loan:

  1. Shorten the loan from 30 to 15 years. You can only shorten the length of the mortgage when modifying. You can’t go from 15 to 30 years.
  2. Reduce the interest rate.
  3. Possibly reduce the payment amount.

All of this is possible by simply signing a Request to Modify document that was emailed to us from the bank. We didn’t have to fill out an application, we didn’t have to go through the Income to Debt Ratio dance, we didn’t have to have an appraisal, we didn’t have to have a survey, but they did check our credit scores. That was basically it.

Modifying our mortgage was just what I was looking for.

Why the “HELLO” didn’t I just call the bank first?

Oh well, live and learn.

We signed the papers the other day and we now have a 15-year mortgage at 4.24%.

So, that financial milstone is complete. We’ve modified our mortgage and will pay it off earlier than if we’d kept the 30-year note, plus we’ll be saving about $70k in interest.

I have to admit, I’m pretty pleased with myself.

I can only do better by paying of the note earlier than 15 years, which is my next game plan. Gonna take care of a few other financial issues then start directing extra $$ towards our mortgage.

Stay tuned I’ll be sharing more on that, in the future.

So, are you interested in improving your mortgage? I suggest that you look into modifying it.

 

 

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Here are 5 more great blog posts from some great folks. Enjoy! – Shin

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If you're not aware of the benefits of opening an IRA, you're missing out on tons of compound interest while you're young! Here are the top places to open an Individual Retirement Account, and why you should.

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7 Date Ideas That You Can Do for Free

Summer time seems to free up more time. The sun stays out longer, many jobs offer up summer hours, things tend to slow down for many people and I think the nicer weather just makes people want to do more. While this is great and I, personally, do love summer, constantly having plans can get expensive. That’s why I wanted to share with you some great date ideas that are free or relatively inexpensive! Just to clarify, I use the term “date” loosely; these are ideas that can be used by couples, friends or even families.

  1. Hiking or Visiting Trails

Exploring nature is an awesome way to spend time with friends, significant others and family. There are several places where you can hike for free and even if there is a cost associated with hiking, it is generally something reasonable like a fee for parking. Something that my husband and I love to do is take our dog with us and go on the bike path in our town. We don’t own bikes, and our dog has not yet learned to ride one =P, but we love to walk or jog on the path in the warmer months. I love going for walks because it’s just kind of soothing and it’s a good time to talk and catch up with someone. My husband and I also like to walk our dog together on weeknights around our neighborhood as a way to spend a little more time together.

  1. Gym Dates

For me, I tend to do more working out in the summer. Since summer is peak vacation time and people spend lots of time in bathing suits and just less clothing in general, it seems that this is when most people are trying to get/stay in shape. This is why a gym date is a great thing! While my husband doesn’t have a gym membership (he prefers to work out at home), a friend of mine who also happens to be a neighbor does. Since I don’t work Fridays in the summer and she works from home, we have officially made Friday mornings our gym date time. It’s a great way for us to get to hang out with zero additional costs (since we both already had memberships) and we’re being productive at the same time. Many gyms offer guest passes, too, in case your friend, family member or significant other does not have a membership of his or her own.

  1. Eat In

While going out to eat at restaurants is great, sometimes having dinner in at home is just as good. The only cost is the cost of your groceries, which you may or may not have already depending if you like to stock up when there’s good deals. BBQs are my favorite because there’s less clean up and effort from a cooking stand point. We love doing BBQs with other couples and just spending the night on someone’s patio or deck chatting it up. For a more romantic date night, opt for cooking something together with your significant other, lighting some candles and playing some music. It’s easy to create the ambience of a restaurant in your own home!

  1. Game Night

Nothing beats a good old fashioned game night! Whether it’s board games, video games, cards or even cell phone app games, you can have a ton of fun doing a game night with a bunch of people. A few of my personal favorites are Scattergories, Cards Against Humanity, Poker and Cranium.

  1. Bring the Theater to You

Invite your friends, significant other or family over for movie night. With streaming services such as Netflix and Hulu or with cable, you can certainly find movies that you don’t have to pay anything additional for. Make some popcorn or other snacks at home, cozy up on the couch and hit play! I love movie nights in because you get to stay in your pajamas if you want to, whereas that may be inappropriate at a movie theater.

  1. Picnic

A picnic can be done anywhere from your local park to a hiking trail to your backyard even. Bring a blanket, sandwiches, fruit, vegetables, snacks, water and maybe even some wine and you’re good to go! A change of scenery can be nice and who needs a formal table and chairs to enjoy a meal anyway?

  1. Visit a Park

Speaking of parks, there’s a lot you can do when hanging out at a park. As mentioned above, you can have a picnic at a park. Or revisit your childhood and have a competition to see who can swing higher on the playground. Or play a softball game with a bunch of friends. Or go fishing (we have a small pond at the park near us). Or play a little basketball. The list can go on and on depending on what you can find at your local park.

 

Do you have any free or cheap date ideas to share? I’d love to hear them!  

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Posted in Financial, Note Worthy, Saving, Uncategorized | Tagged , , | 5 Comments

Five Great Financial Blog Posts for You to Check Out: June 15, 2017

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I’ve learned a ton from other bloggers so I’m going to share some great posts with you. I’m sure you’ll find useful info in these. Shin ********************************************************** Sharing is caring!

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Investing Through Crowdfunding: Want to Invest in a Christmas Movie?

Note: This is not a sponsored or compensated post, just my thoughts on recent communication and new knowledge.

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Would you be interested in helping fund a movie with the expectation of receiving part of the profit?

You might be thinking, “Yeah, right. I don’t have that kind of money.”

Well, that’s not true these days with crowdfunding as an investment vehicle.

Crowdfunding?  Yep, crowdfunding.

What is Crowdfunding?

If you’re not already up on crowdfunding, here’s the gist of it.

Crowdfunding is the method of raising money from many investors, in small amounts, instead of large amounts from a small number of investors.

That’s it. There’s no simpler way to put it.

Crowdfunding vs Traditional Capital Raising

Before crowdfunding, if I wanted to fund a project, say a movie, I would traditionally pitch my idea to a limited number of potential investors who each would have a large amount of capital that they might invest in my endeavor.

With the introduction of crowdfunding, I now have the opportunity to reach out to MANY individuals that don’t necessarily have a large amount of capital to invest, but have some that they would like to put into investment avenues that are out of the ordinary.

It’s all about reaching out to the “Crowd,” the crowd that has the funds and willingness to invest in my project.

Crowdfunding is all about the numbers, reaching a large number of people with money to invest.

Diversify

If you’be been investing you’ve heard the term diversify and crowdfunding offers another avenue to do so. It’s best to limit your exposure though, as things might not turn out as positive as one might hope.  You know how things go up and down and some really go down.

Do some research, as there’s a bunch of opportunities out there, but invest money that you’re not going to need for a number of years when investing in start up companies and such.

Here’s Something Different

I’ve been investing since the early ’90’s, but haven’t had the opportunity to invest through crowdfunding.  Statute has only recently changed allowing the opportunity. In the past, one could only receive a reward for ponying up some dollars.  Caps, shirts, and other items were the norm.

Law passed earlier this year allowing folks to invest through crowdfunding, you know the kind of investing that makes sense, that which can pay back in funds, not in gimicky items? I don’t know about you, but I don’t need another t-shirt, or tote bag, or water bottle, or certificate of appreciation. I can always use more $$ though.

So, where am I going with this? I was recently contacted by a Money is not Taboo reader (Associate Producer Katherine Botts) about an upcoming movie that’s being produced through crowdfunding. It’s a Christmas story that’s expected for release this Christmas season.

Interesting?

I think so. The minimum investment is $100.00. That’s a small amount for folks with descretionary money.

How About a Bit More Info?

Here’s some of the details, and more can be found at That Christmas Movie.

Investment type: Revenue Participation Rights.
To begin with, for investors 100% of the adjusted gross proceeds from the movie go straight into your pocket.

Then, once you’ve gotten 100% of your initial investment back, that ratio adjusts, and 50% of the film’s profits are yours in perpetuity. That’s forever and that’s a mighty long time.

Minimum Investment: $100.

Security Type: Revenue Participation Rights.
Round Size: 
Min: $10,000; Max: $100,000.
Interest Rate: 
Adjusted gross proceeds sharing agreement which provides the investors 100% of the Company’s adjusted gross proceeds up to the repayment amount of 100% of their investment, and 50% of adjusted gross proceeds thereafter.
Length of Term: None.
Conversion Provisions:
 None.

Pre-Money Valuation: $2,000,000.00

Okay, so who’s making the movie, what’s it about, and who’s in it?

The executive producer is Jay Kogen, winner of four Emmys® for The Simpsons and Frasier, and currently executive producer on the hit Nickelodeon show School of Rock.

Donald Markowitz, Oscar® winner for the hit song “I’ve Had the Time of My Life” from Dirty Dancing, will be writing a brand new Christmas song for the project.

I’ll Be Next Door For Christmas is a warmhearted, upbeat comedy about a family that’s crazy for Christmas. Except for the 16-year-old daughter — her family’s over-the-top Christmas celebrations have made her life miserable. When her out-of-state boyfriend decides to visit for the holidays, she’s determined to spare him her family’s Christmas obsession, so she hires actors to play her parents and stages a fake Christmas dinner in the empty house next door. What could go wrong?

Actress Jennifer Tilly, known for her Oscar® nominated role in Woody Allen’s Bullets Over Broadway, is attached as a co-star.

This is definitely something out of the ordinary for me.  Well, to be honest, crowdfunding is out of the ordinary for me, but as I’ve said before Money is not Taboo has come about from my blundering through the financial world.

I learn something new everyday.

Here’s some links that I’ve found worthwhile.

Crowdfunding Basics (Investopedia)

What is Crowdfunding? (Fundable)

Top 10 Crowdfunding Sites (Crowdfunding)

The Unique Value of Crowdfunding Is Not Money — It’s Community (Harvard Business Review)

Top 10 Crowdfunding Websites (Entrepreneur)

So, what do you think? Investing through crowdfunding is definitely an interesting concept. I think I’m going to look at it a bit more closely, and maybe even dip my toes in the pool. How about you, want to invest in a Christmas movie?

Anyway about it, I’ll be looking forward to I’ll Be Next Door For Christmas.  Maybe I’ll be one of those that makes money off of the movie.

How about you, have you done any investing through crowdfunding? If so, please let us know how it worked out.

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