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Mortgage Refinance Odyssey

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The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

My odyssey started back in October 2014 and did not end until the end of January 2015.  What I thought would be a pretty straight-forward process, turned into anything but.

The Beginning of Mortgage Refinance

I am not sure how or why I decided to start looking into a refinance, maybe I was just looking to cut another expense.  The thought crossed my mind in October and I mentioned that I might be looking to refinance to a coworker.  Since they had recently purchased a house, she referred me to her lender.  I’ll call them Lender A, so things don’t get too confusing.  I was looking to eliminate the mortgage insurance from my monthly payment.

Since I didn’t have the 20% down payment when I bought the house, I was required to have mortgage insurance.  That mortgage insurance premium represents $300 a month.  When I contacted Lender A, they were sure that they could execute a refinance that would eliminate the mortgage insurance.  After taking the necessary information for the application, they ordered an appraisal of the house.

Appraisal

I’m not sure what delayed the appraisal, but it ended up taking a few weeks before the appraiser was able to issue their report.  The report did not come back as a surprise to me.  When we had purchased the home back in 2011 it was appraised for $345,000.  This appraisal came back at $340,000.  Lender A said that they would be able to refinance using a primary fixed loan for 80% of the value and a variable home equity as the second loan for the remaining balance.

It was around this time that my rate-lock was nearing its expiration.  As it turned out, rates had gone down slightly.  I inquired with Lender A about what would happen if my rate locked expired.  They simply said they would just extend it until my closing.  I can’t say I was very happy about not getting the benefit of a lower rate.  So, I decided to look around to see if any other lenders could give me a better deal.

Other Mortgage Refinance Options

I connected with 2 other lenders, Lender B and Lender C.  Lender B was a little vague at first, so I decided to proceed with Lender C.  Lender C was able to offer me a single fixed rate loan for the entire amount.  This was much more attractive than the variable rate with Lender A.  Once again, I started the refinance process.  This was probably around the beginning of December.  The process with Lender C was very quick.  The appraiser was out in just a few days and we had the appraisal report back shortly thereafter.  That’s when a wrench was thrown into the process.

This appraisal came back at $285,000.  I tried disputing the appraisal, but in the end, Lender C was satisfied that the appraisal was adequate.  Since I owed more than $285,000 on my house, there was nothing they could do for me.

Within the next week, Lender B had contacted me again.  I explained that I would only be looking to refinance if I could have one loan with an interest rate of 4.125% or less.  I had done some calculations and determined that that was my breakeven point.  If I couldn’t get those terms, it would not make sense financially to do it.  I also explained the situation of the competing appraisals.

Lender B said that they would order another appraisal, but that if it didn’t come back with a good valuation, that they could use the first one.  So, once again I started the process and the third appraisal was ordered.  This one came back with a valuation of $345,000.  Lender B now is able to give me the final terms of the new mortgage, 3.99% fixed for 30-years.  My payment would be going down about $320 a month from what I was paying previously.  I closed at the end of January.

Successful Mortgage Refinance

In the end, I paid for an extra appraisal.  Lender C credited me back the cost of the appraisal when the valuation came back in too low.  I was out the $400 I paid for the appraisal for Lender A because I had decided not to proceed with the loan.  I’m ok with that.  I have used that extra $300 a month a couple of ways.  The first was to plow a majority of it back towards my mortgage.  I am applying and extra $215 a month towards my mortgage principal.  With that and allocating some of my bonus every year towards the mortgage, I should be able to pay the house off in about 20 years.  The remaining $100 a month went to shore up some of our monthly expense items.  This should allow me to increase my 401k contributions when my salary review occurs in April.

How are your finances shaping up for 2015?

Expense Reduction

Accounting

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

One of my financial goals is to always try and reduce my expenses. I always want to be efficient with how I am spending my money and to control the leakage that seems to occur when I am not diligent.  That leakage is what got me into financial trouble years ago.  I simply was not paying attention to where my money was being spent and ended up spending more than I was making.

Now, whenever I can, I reduce expenses.  Since I have been doing this for a few years, there are often no big changes, but this year, I managed to reduce my expenses by about $150 a month.  There was another change that began when 2015 started and another change that is currently in the works.  Those two additional changes will reduce my expenses by another $300-$400 a month.

Dry Cleaning

It was probably May or June, when I began to think about cutting out my dry cleaning expense. I wear a shirt and tie every day to work and I would have the shirts and pants cleaned at the dry cleaners.  I would clean the shirts after wearing them just once and the pants I would wear twice before cleaning them.  My average cost per month was about $115-$120.  The more I thought about this, the more I felt this was a want, rather than a need.  There were other areas of my budget that could benefit from this money.  I in turn, could simply clean and iron the shirts and pants myself.  I can say I haven’t exactly been thrilled each time I have to iron my clothes, but at least I was able to chop a significant expense from my budget.

Media

The other area that saw a reduction was my cable/phone/internet bill. I was able to take advantage of a 2-year promotional rate that locks in my price while also reducing my cost.  I generally view most cable providers as interchangeable, so I do not have a problem switching from one to the other.  The switch I did over the summer allowed me to reduce my bill by $25 a month.  The cable bill is one bill most people would probably cut entirely, but it’s a luxury that my wife and I indulge in.  My job is to simply keep the bill as small as possible.

Benefit Costs

The item that changed starting in 2015 was my benefit costs. This expense was one expense that was brought to me, rather than me seeking it out.  My company changed our medical plan to be mainly a high deductible plan and you had three choices for deductibles.  After some analysis, I opted for the highest deductible, $7,000.  This election reduced my medical expenses by $140 a month.  The reduction has allowed me to completely max out a HSA, with money left over.  My fingers are crossed that the money can stay in the HSA and will not be needed for medical expenses.

Mortgage

I am in the process of trying to reduce my greatest expense, my mortgage. I am looking into a refinance option where I would no longer have to pay for mortgage insurance.  Since I have a pretty good credit score, banks are willing to overlook the fact that I do not have the necessary 20% equity in the home.  The interest rate would be slightly higher than I currently pay now, but I would be able to eliminate the nearly $325 a month for the mortgage insurance.  If this happens, my plan is to plow $225 of the savings into paying the mortgage off that much faster.  The remaining $100 would go to some of the other spending buckets, so that we can enjoy a little of the savings.

By staying on top of my expenses, I am able to spend my money in the areas that I most want. This allows me to save for things like vacations and retirement, while still enjoying daily pleasures such as cable.

How have your expenses changed over the last year?

Binary Options and why the Four Asian Tigers have Successful Economies

Singapore, Hong Kong, South Korea, and Taiwan are highly developed free market economies that are known as the Four Asian Tigers. All these nations experienced rapid industrialization from the 1960s until the 1990s and by the Year 2000 had developed into high income economies. Singapore and Hong Kong emerged into leading world financial centers , while Taiwan and South Korea emerged into world leaders in Information Technology. Singapore’s first Prime Minister Lee Kuan Yew is widely credited with being responsible for Singapore’s transition from a third world country into a first world country under his Prime Ministership (1959-1990). With OneTwoTrade Binary Options Trading, you can trade with Stocks, Currencies, Commodities and Indices from Singapore, Hong Kong, South Korea and Taiwan.

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Singapore

Singapore is one of the world’s 5 busiest ports and is a major international transport hub for both the sea and air. It possesses the world’s 11th largest foreign reserves. Within Asia it is the only country that holds a AAA credit rating and is ranked 1st with the Ease of Doing Business Index. In addition it has 11 free trade agreements with other countries. Being one of the world’s leading tax havens, tax it attracts a lot of foreign investment across most sectors of the economy where about 10,000 foreign companies from across the globe operate. The main reasons for a high level of foreign investment include the location, advanced infrastructure, low tax rates, skilled workforce and a corruption free environment. Singapore ranks as the 15th largest importer and 14th largest exporter.

Hong Kong

Hong Kong has an economic policy of Positive non-interventionism that makes it an example of laissez-faire capitalism. Despite few natural resources and little land that is suitable for farming, it has the 7th largest stock exchange in the world. It was ranked as the worlds freest economy by the Index of Economic Freedom for 21 consecutive years (1995-2015) and is currently ranked 2nd by the Ease of Doing Business Index. As a place with almost no trade restrictions, Hong Kong has developed into a leading financial center as well as a center for Information Technology and many professional services including management and business consultation.

South Korea

South Korea is the most industrialized OCED (Organization for Economic Co-operation and Development) country, a member of the G20, the world’s 8th largest exporter and 7th largest importer, the 13th largest market economy in the world, has 17 Fortune 500 listed companies including Samsung, Hyundai and LG and successfully avoided a recession during the Global Financial Crisis. Hi Tech and Heavy Industries are strong sectors of the South Korean economy.

Taiwan

Taiwan is a world leader in the manufacturing of Electronic Components and Personal Computers (PCs). Leading Taiwanese Hi Tech manufacturers include HTC in the field of Smartphones and Tablets, Acer and Asus in the field of PCs and Foxconn and Pegatron in the field of electronic contract manufacturing. Foxconn is the world’s largest electronics contractor manufacturer.

Taiwanese investors and businesses are major investors in mainland China and South East Asia. Taiwan’s main trading partners are China, Japan, the United States, the European Union and Hong Kong. Taiwan’s outstanding and well maintained rail and road transport system is cutting edge and gives it an extra advantage.

Year-End Financial Grade

Accounting

 

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

There is one number that I am diligent about tracking at year-end, my net worth. I use it as my scorecard to see how I did financially during the previous year – here’s mine for 2014.

My History

As I have said before, I was in a pretty deep financial hole.  I am not sure exactly how deep it was, but my net worth was probably in the negative $30K range.  This past year was not my best year in terms of dollar or percentage increase, but it was solid.  My net worth increased about 22% over last year and about $23K overall.  I am pretty happy with that increase.  I’ll discuss where the biggest changes occurred and where I think I might end this year.

Yay 401k!

The biggest change, by far, was in my 401k. That represented almost all of the gains in my net worth.  Between my contributions, my company’s contributions and market gains, my account was up $20K for the year.  I contributed just over $8K for the year.  That was 7% of my gross earnings, with 6% going to a traditional 401K and 1% going to a Roth 401k.  My company contributed just over $9K.  There is a matching contribution, dollar for dollar, up to 6% and then a flat 2% contribution.  The 2% contribution is in lieu of a pension plan.  The remaining amount came from market gains.  I managed to earn just over $3K having my 401k invested in the stock market.  I have a relatively aggressive allocation, with about 90% invested in a few stock funds and about 10% invested in a bond fund.  Since I probably have about 30 years before I retire, I feel this is appropriate.  According to my statement, my return for the year was an even 7%.  Naturally, I would prefer more, but I will take 7%.

Debt Reduction

The next change was debt reduction. I did not take on any additional debt during the year, I just paid down my existing loans.  Between my mortgage and car loan, I reduced my obligations almost $10K.  I did not prepay either loan.  I plan on adjusting that philosophy if I am able to refinance my mortgage and eliminate the private mortgage insurance.  In that case, I will add an additional $200 or so every month to reduce the mortgage, as well as using a portion of my bonus to pay down the mortgage.

Assets

The final change was actually a reduction in my assets that offset some of the gains I had in the 401k and debt reduction. A good portion of the savings reduction was due to planned purchases.  We had budgeted and saved for a snow blower, which we purchased early last year.  I also took advantage and pre-bought my heating oil.  The combination of the two lowered my savings amount by over $4K.  The other thing that lowered my assets was the depreciation of my two cars.  My wife’s car is a 2012 and mine is a 2001.  I checked on what the values would be for the cars given the current mileage of each.

2015

I obviously can’t forecast what the stock market will do this year, but I can control how much money I save and how much of my debt I payoff. My 401k contributions will remain the same in 2015.  I will contribute 7% of my salary and the company will contribute 8%.  That will mean at least another $14K going into the 401k.  If I am lucky enough to get a raise or a bonus, that number will only go up.

I also plan on continuing my savings in my Vanguard brokerage account.  I am setting aside $85 a month or about $1,000 for the year.  I’m comfortable with that number right now.  If the raise happens to be a significant one, I would likely increase that amount.  The car loan will be reduced on the normal schedule, which means a principal reduction of about $3,600.  If my mortgage refinance is successful, my plan is to use some of the savings from the reduce payment towards the mortgage.  I have estimated that I might be able to reduce the principal by about $8,400.  All in, it looks like I should be able to increase my net worth by about $20,000.  Some of my gains will be offset by the depreciation on the cars, but I also hope to see some market gains as well.  Fingers are crossed.

How was your year-end financial check?

There’s a New Way to Look at Retirement Calculations?

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

This article I found in The Wall Street Journal somewhat surprised me.  It discusses how advisors are now counseling their clients, not on the size of their nest egg, but rather on how much income it might be able to generate.  The surprising thing to me was that this is what I have been doing all along.

It was probably about 5 years ago, that I wanted to seriously analyze my retirement savings.  I had some decisions to make and needed to figure out what my retirement savings would look like in 30+ years.  I tried looking at various on-line calculators, but found myself disappointed in them.  Essentially, the calculators weren’t robust enough for me.  I couldn’t change some basic assumptions that were built into them.  So, I built my own.  It is simply an Excel spreadsheet that takes my assumptions and turns them into an income projection.  The key to the calculations are the assumptions that I made in order to forecast 30+ years into the future.

Employers’ Plans

The first thing I looked at was what retirement benefits my employer offered. The company provides a matching contribution to the 401k, along with a fixed percentage of salary contribution regardless of whether I contribute or not. The assumption I made here was that the plan would remain the same throughout my working career.  Not very realistic, but it would be too hard to guess what the changes would be in the future.  One thing to take note when looking at your plan, is what compensation is included in the employer match?  Is it against base salary only?  Are bonuses and overtime considered?  My company made a change in the past year to include bonuses in the 401k.  Not only am I now able to set a portion of my bonus aside in my 401k, but that the company also matches that contribution.  So, essentially I receive a larger bonus.

Salary

The next assumption I made was related to my salary. How did I think it would change over time?  I wanted to be a little conservative, but also have faith in my ability to grow my earnings.  Here I decided to grow my salary at 4% every year from its current level.  I felt this was reasonable given my track record since I graduated college.  I have managed a 6% average annual growth over the last 15 years.  I might change this in the near future, as my desire to advance up the corporate ladder has diminished.  Keeping pace with inflation maybe a better assumption, I may have to revisit it next year.

Savings

The next decision I made was how my contributions would change over time. This was the biggest drawback I felt to the on-line calculators.  I wanted to increase my savings over time.  For me, I wanted to assume that I would increase my savings by 1% of my salary every year.  The thinking is that when I receive a raise, I can raise my savings rate and not notice a decrease in my take-home pay.  I’d like to say that I have been consistent increasing my savings every year, but that has not been the case.  I have increased it in other ways, such as opening a healthcare savings account.  I considered those savings as retirement funds as well, just not a 401k.

Investment Return

This is perhaps the biggest unknown. I assumed an average return of 9%.  Some will argue that is overly aggressive, but I am comfortable with it.  I feel like over the course of 30 years, I should be able to generate that level of return.

Inflation

Here is another assumption that can have a huge impact. When I calculate what my savings will be in 30 years, what I need to know is will that be enough?  I translate the future amount back into present dollars via the inflation factor.  I used 3% as my assumption.  That has been the historical rate of inflation and I felt it was a reasonable assumption.

Do I have enough?

In the end, trying to figure out if I have enough is just a guess. The bottom-line I looked at was whether my savings would be enough to generate an income equal to my take-home pay when I retire.  I assumed a 4% withdrawal rate.  I figure if I am living off my take-home pay just before retirement, then that amount should be adequate to retire on.  As I get closer to retirement, I’ll have a better idea of what my spending will actually look like.  Have you calculated your retirement number?

Tax Time

Accounting

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I finally got around to filing my taxes.  I wasn’t procrastinating because I owed money; on the contrary, I was receiving refunds from both the federal and state government.  It just took me awhile to find a solid 2 hour block of time to get them done.  When I was finished, the tax program that I use gave me a comparison to the previous year’s taxes as a way to make sure I didn’t miss anything.  I found it far more useful to see how my finances changed over the past year and since I’m writing about it, that means you get to take a look with me.

Wages

The first item of comparison is wages and only shows a difference of $1,900.  This doesn’t quite tell the entire story.  To satisfy my own curiosity, I looked at my gross pay for 2013 and 2014.  In 2013, I was paid a total of $106,000 between salary and bonus.  In 2014, the number rose by $8,750 as I received a salary increase and a larger bonus.  So, why might you ask did my wage comparison only change by $1,900?  The reason is that my taxable wages only went up by that amount because I took advantage of more tax-deferred accounts in 2014.  In 2014, I contributed an additional $1,200 to my 401k and I also fully funded an HSA.  Those two things combined lowered my taxable income by almost $7,000.  So, while it may not look like my income changed all that much, it actually did and I just increased my savings.

Dividends and Interest

The next two items to look at were dividends and interest.  Now, the change wasn’t huge, an increase of about $300 from 2013 to 2014, they do represent a much improved financial picture for me.  Since I have an additional $300 in interest and dividends that means my savings and investments have increased.  This was due to a combination of a larger bonus than usual, as well as money I received from an inheritance.  We continue to funnel money monthly towards the brokerage account on a monthly basis, but the savings account only has monthly deposits for our spending buckets.

Deductions

I have itemized my deductions every year since I bought a house, as that’s usually the most tax efficient thing for me.  What’s interesting about the comparison this time is that 2014 was significantly higher.  The reason being was that in 2013, part of the inheritance I received was an IRA.  Ideally, I would have left the money in the IRA and just taken out what I was required to every year.  However, it was better for my overall financial picture to take a lump sum distribution.  By taking that distribution though, I lost the ability to deduct mortgage insurance as my Adjusted Gross Income was too high.

That lost deduction was about $4,000, which meant I had pay taxes on an additional $4,000 of income in 2013 as opposed to 2014.  When I file my taxes next year, the situation will be reversed as I was able to eliminate paying for mortgage insurance with my refinance a couple months back.  I’ll happily pay the additional tax if it means I eliminated the $3,600 a year expense.

Refund!

The total tax bill and refund amounts were the last big differences.  Total taxed owed decreased by over $4,000 from 2013 to 2014.  That was driven in large part to the IRA distribution.  The IRA added almost $20,000 to my income in 2013 and as such, added almost $3,000 to my tax owed.

I had planned on owing the additional tax, so it wasn’t a big impact on my budget as I had adjusted my withholdings so that I wouldn’t owe anything come year-end.  In fact, I got a small refund of $161 in 2013.

In 2014 my refund increased to about $1,400.  The larger refund was driven by a larger bonus in 2014.  The taxes withheld from the bonus were higher than needed.  I could have adjusted my paycheck withholdings to minimize the refund, but I planned on using the refund to help fund the surprise trip for my wife.  Since she doesn’t pay attention to the refund amounts, since they are normally really small, it was an easy way to squirrel away a little more money for the trip.

How did your taxes compare with last year?

 

Did You Lose Your Job? 3 Things That Will Help You Get Back On Your Feet Again

Money

Being unemployed can be a very stressful time in your life. Here are some tips on how to find a job and get back on your feet again as soon as possible.

1.) 5 Steps to Get Out of the Unemployment’s Vicious Cycle

  1. Network – Networking is a great way to find leads on jobs. Sit down and make a list of everyone you know and start making phone calls. Ask if they know of any jobs open with their companies and if they could refer you or any positions. Don’t be too picky if what they suggest is not exactly what you are looking for. The important thing is to get your foot in the door and start working again. Once you are established in a company you can also try for a job more to your liking or with more pay in the future.
  2. Volunteer – While it may seem counterproductive to work for free when you are looking for a paid job do not overlook this important option. Once again it is all about getting your foot in the door. Volunteering is a great way to gain skills and get contacts that could lead to a paid position. Find a company that you does something that you enjoy or feel passionate about and begin volunteering. This will allow employers to see what kind of worker you are and the kind of work ethics that you have and when a position becomes available they will be more apt to hire you for the job rather than looking elsewhere. This is a great way to get solid references as well.
  3. Adjust your Attitude – Being unemployed can be very hard on your mental emotions but you will never get hired if you don’t have a good attitude. Be willing to do the job that is available and more. Go into the job search with the attitude of ‘I am ready to work and help my company’ rather than ‘I need a job.’
  4. Use the Internet – The days of looking in the paper and circling help wanted ads are pretty much over. Most businesses advertise online while looking for employees. Use all of the online job search engines you can to get the most up to date information on jobs that are available. This includes sites such as Monsterjobs, LinkUp, Indeed, and Simply Hired. Federal Jobs can be found at USA Jobs.gov.
  5. Follow Up – Once you have found a job opening and applied for the job you are not done. Send a follow up letter or note to let the employer know that you are still interested in the job. If you have been interviewed and are waiting to hear back send a thank you card to the employers telling them how nice it was to meet them and how excited you are about the company and your future with them. This will show the employer that you are really serious about working for them and not just going through the motions. It will also keep you fresh at the front of their minds which is a good place to be. Good, prompt polite follow up could mean the difference between getting the job or getting passed over.

2.) How to be prepared for the Big Interview – Once you have found a job opening and submitted your application and resume the next step is the interview. You might look good on paper but if you don’t have a good interview chances are you will not be offered the position. The interview is very important. In order to be prepared there are certain things you will need to do.

  1. Dress appropriately and professionally. The saying ‘dress of success’ applies here. Dress for the job and put your best foot forward.
  2. Practice interview questions so you have a ready answer.
  3. Be enthusiastic and sincere.
  4. Be ready to tell them about yourself.
  5. Be honest about your job skills.
  6. Don’t talk too much and monopolize the conversation. Stay on topic.

3.) How to Get Ready for Hard Period without Income – Not having a steady income while looking for a job will put a difficult strain on you. Ideally you will have some money in savings to get you through but that is not always the case. Until you are once again bringing in steady payment there are a few things that will need to be done.

  1. Mental preparation – it can be depressing not having any money and you will need to be mentally prepared for that. Some things in your life will have to change when you are unemployed. Going out to eat and buying things that are not necessary will need to stop. Keep in mind that the period of unemployment will not last forever. Stay positive and cut your spending to get through this period of time.
  2. Consider taking out a loan – if you do not have savings to fall back on it might be necessary to take out an unemployment loan to cover your expenses such as car loans and mortgages along with food and other necessities.
  3. There are many places that will offer cash loans for people who are unemployed but be sure to read about the payback procedures, timeline and interest rates.

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