Well, so far the beginning of 2009 has felt quite similar to the last part of 2008. That, however, does not mean that there aren’t opportunities out there for us to take advantage of. Two common questions I’ve been getting from you are ‘should i still do this whole re-balancing thing?’ and ‘what do I need to know about re-financing?’ In today’s show I tackle both of these issues.
I’m going to go out on a limb and say that right now might be the best time ever to re-finance the mortgage on your home. The reason I say this is that rates are artificially low. Due to the housing debacle and the overall slow-down of the economy, the government is trying to figure out anything they can to 1) boost the economy and 2) unload homes. Because of this, rates are now hovering in the 4.5% – 5.0% range. Re-financing your home is similar to buying a car in that you have to know what you are doing and know what to look for. As you listen to the show I will define and explain some of the following issues:
- Origination Fees – These are fees the lender gets paid for shopping the loan.
- Discount Points – These allow you to buy down the interest rate on your loan (say from 5% down to 4.5%). Considering how low rates are right now, buying discount points may not be necessary.
- Tax Considerations – When you purchase a home you are able to deduct the cost of origination fees and discount points. When you re-finance, you aren’t able to deduct the full value of the fees in the current year, but you can amortize the deduction over the life of the loan
- No-Cost Re-Financing – Historically it has been possible to take a higher rate and not have to pay any re-financing fees. The lender would be willing to pay these fees on your behalf in exchange of you paying the higher rate. Currently lenders are charging over 1% to do this, so it also may not make a lot of sense to do this right now. It may be more to your benefit to just go ahead and pay the re-fi costs.
- 15 Year vs. 30 Year – Typically 15 year mortgages were about half of a percent cheaper than 30 year mortgages. Currently, there is virtually no difference between the two. When considering this, why would it not make sense to go ahead and lock in that 4.5% rate for 30 years JUST in case something did happen. Remember, also, that just because you have a 30 year loan doesn’t mean you can not pay it off in 15 years.
- Good Faith Estimates – Ask several different companies for good faith estimates so you can find out who is offering the best deal and compare fees. Some fees that are typically negotiable include: administrative fees, courier fees, mail delivery fees. Some fees that are typically not negotiable include: fees that are going to a third party (i.e. title search, appraisal fees, attorney fees, etc.). Finally, the fees you should not pay because they are already included: processing fees, document fees, and settlement costs.
- HUD 1 Statement – After you have locked in your rate and you are getting ready to close, you will be provided with this form. You will usually get it about one day before closing. Check to make sure this statement matches the good faith estimate you received so you can be sure there aren’t any charges you weren’t already aware of.
The second topic I touch on in the show is re-balancing. 2008 was the best and worst of times for asset allocation. What I mean by this is that for the first three quarters of 2008, asset allocation held up great. A well-diversified and properly allocated portfolio was able to experience a great deal less volatility than the broad markets. Then came the fourth quarter when fear gripped the markets and punished any asset class not tied to cash. Every asset class began losing, and when asset classes move in the same direction, correlation coefficients are out the window. This link from SmartMoney provides a very useful asset allocation tool based on your response to a brief questionnaire. Consider using this tool to reevaluate your risk tolerance and to re-balance your portfolio.
Keep your eyes open in the coming weeks for our brand new functioning members section.
Brian,
I uses iTunes to manage my podcasts. Today, I downloaded your latest podcast “Year of the ‘Re’ – Refinance and Rebalance” and discovered it was the prior podcast “Protecting Yourself From Fraud”.
Not sure what happened but wanted to inform you.
Keep up the good work!
It seems like the most recent podcast posted here and on itunes is just a duplicate of the Madoff podcast from 01/08/09.
Sorry about the bad link that sent everyone back to last week’s show. Everything is all fixed now. Thank you for listening and sorry for the bad link.
Brian,
I use iTunes, and this week’s podcast on Refinance is still a repeat of the last one on fraud. Can you try giving it a slightly different file name, so iTunes will download it? Thanks!
As of this morning, iTunes is still downloading a repeat of the Madoff podcast from 1/8/09 for this podcast. Thanks for all your hard work Brian
iTunes still had the duplicate episode from 1/8/09 for 1/16/09 as of this morning. Please re-title or something to get it to work. Keep up the great work Brian, thanks!
Yeterday I renamed the file to see if iTunes would reload the podcast. It did not work, but I was able to delete the original podcast and then download the show directly from our page on iTunes. Sorry for the confusion. I may repost the show at the first of next week, so that iTunes will redistribute the show to everyone again. Hopefully, listeners will not be annoyed with a duplicate show being reposted. Thank you for your patience and the desire to not miss a show.
Brian
What was that quick equation you used for determining if you should buy the “point” or not? I didn’t see it on your website notes. Seems like it was very useful, but can’t remember it. Thank you!
How can I get the 1-16 show? I was behind on listening to you and deleted the duplicate show and now can’t get the 1-16 show. I am on ITunes.