Sunday, September 13, 2009

refinancing my home loan

I started monitoring the mortgage rates the end of last year because of the feds economic recovery efforts. The confirm loan rate moved lower very quickly but the jumbo loan never budgeted.

My current loan is from Wells Fargo. It's an excellent program.
- 30 year fixed jumbo at 6.25%
- 10 yrs interest only period
- 0 points

Working as a self-employed consultant at the time, the little extra flexibility is nice. Although I have always paid the principle as if it as a regular 30 year fixed loan.

Here is my criteria of refinance.
1) 30 yr fixed jumbo loan
2) .75 or higher LTV
3) less than 1 year for refi fee payback.
4) new monthly payment should be about the same as my current interest rate.

All these condition basically works out that my new interest rate must be at least 1% lower and less then 1.25 of combined point and fees. The LTV ratio is also very important because the falling house valuation. Anything loan below .75 LTV would require additional cash from me. I knew this the area of highest risk so I saved aggressively.

Here is the break down on the new loan. I am refinancing my home loan at Pen Fed credit union. I was referred to them from another blogger Adam Nash : Refinancing? Try Pentagon Federal Credit Union (PFCU).

1) 30 yr fixed jumbo loan
2) 4.875% interest rate
3) 1% origination fee, 0 points
4) .70 LTV
5) 13 month refi fee payback

As soon as I saw the new PenFed rate, I knew the moment has finally come. It's not everything that I wanted. I submitted my application this morning. Let's see if I get approved and the result of house appraisal valuation.

The important lesson for me here is that I worked with the end in mind. I defined my target as clearly as possible. My goal was not to find the lowest possible interest and try to guess how the market will move from week to week. It was a set of clear and measurable conditions. And I didn't lock myself into those condition. I stayed flexible and considered some possible alternatives.

The mental and numeric preparation is the key. In life, you never know when the right condition will come along. You have to do all the preparation in advance. Define the target conditions, know which conditions are flexible and which are fixed. Set aside the necessary resources. Then patiently wait and jump on the opportunities quickly. No need to doubt or second guess. The decision to apply for the loan was made almost a year ago. I only spend about 30 minutes to refresh my memory and double check my math one last time before I pulled the trigger. I'm confident that I have made the right decision. (Of course, it's really hard to see the down side to 4.875% for a 30 yr loan jumbo. )