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Dave Donhoff - refinance questions...

Posted by rivkadr (My Page) on
Tue, Mar 4, 08 at 19:19

In light of the recent "conforming jumbo" news, I'm not sure what our best options are going to be. Here's our situation:

We currently have a 5 year interest only ARM of $460,000, of which we are in our 3rd year. Our house was purchased for $580k, and we put down the rest. When we bought our house we could have qualified for a 30-year fixed, but wanted to have extra monthly income to fix up our house, and we knew that over the next few years we would be making more money (and we are -- about 25k more), so we had plans to refinance eventually once we were making more money and had stopped fixing things.

That time has just about come -- we're planning on refinancing within the next 6 months. Obviously, we're above the normal conforming limit of 417k.

What do you think is our best bet? Doing some sort of 80/10 loan situation? Or looking into this "conforming jumbo" thing? Something else? We're in SoCal, just as an FYI.

One other concern: my husband's company closed down and fired everyone over Christmas. He just started a new job a couple of weeks ago (did contract work in the interim). How will that affect us doing the refinancing? Should we wait a certain time period (6 months or so) while he's at his new job before starting the refinancing process? He makes the bulk of our household income.


Follow-Up Postings:

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RE: Dave Donhoff - refinance questions...

Hi rivkadr,

What do you think is our best bet? Doing some sort of 80/10 loan situation? Or looking into this "conforming jumbo" thing? Something else? We're in SoCal, just as an FYI.

Ahhh SoCal, land of my youth ;~) Where do you shake & bake... er, um, live? I think I can smell a Tommy Burger with peppers in your posting... or is it In&Out! (This time of year I DEARLY miss living in Cali! Seattle is lush & verdant, but one can hardly stand getting so pale when your heart comes from the land of "the beautiful people!")

As to what I think is your best bet..... do you want my superficial mortgage answer, or my responsible financial planner answer?

The mortgage answer ignores everything except what we know about the mortgage markets, as applied to a flat loanamount figure.

The planner answer depends significantly on much more about your overall holistic financial profile, outcomes, temperaments, future plans, current realities, existing risk management (and/or lack thereof,) and other factors. A planner's response includes the big-picture positioning of the entire financial "chess board pieces" and the making sure that SECURITY comes FIRST, followed by CONTROl, and only thereafter RETURNS/SAVINGS.

The superficial mortgage answer is easily posted & digestible...
It is also irresponsible, like diagnosing your health via the internet.
(And I've yet to meet anyone online enough of a sport to spill their intimate financials online (even anonymously) for my public dissection, poking, prodding, testing & diagnosis. ;~)

One other concern: my husband's company closed down and fired everyone over Christmas. He just started a new job a couple of weeks ago (did contract work in the interim). How will that affect us doing the refinancing? Should we wait a certain time period (6 months or so) while he's at his new job before starting the refinancing process? He makes the bulk of our household income.

If his temp contract work, and his new job, are all in roughly the same line of work... no problem there. If he made a significant career change, then we'd need to weave some custom solutions.

I openly invite you to let me know if you prefer to go into deep personal details here on the GardenWeb (it would be like parading naked down the street, BUT disguised with only a mar de gras mask on so nobody knows exactly who you are.... not too unlike certain locals on Venice or in West Hollywierd,) or strictly confidentially offline.

Warmly,
Dave Donhoff
Strategic Equity & Leverage Planner


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RE: Dave Donhoff - refinance questions...

LOL, we're in the Orange County area :) There are In & Outs around here, but I wouldn't eat there, unless they happen to have veggie burgers (which I doubt)...

I don't care about posting particulars. Maybe it will be useful to someone else, and hey, it's just basic money info, not my credit card number. If someone can someone do something evil and dastardly with the below info, then more power to them.

I can guess some of what you're going to ask:

- Our combined salaries equal $160k.
- As I said, our mortgage is $460k (originally $464k). Our current monthly mortgage bill is about $2815 a month (that includes our escrow account which sets aside our taxes, insurance, etc). We actually pay exactly $3000 a month, so we've been paying a tiny bit of the principle (we haven't been paying more, since we've been paying off a home equity loan for the past several months). Our rate is 5.875%.
- Our regular debts include student loans, which run us about $400 a month (my master's degree was expensive!), and one current car loan for about $300 which has a couple of years left on it. I drive a beater, which I hope to get another 2-3 years out of.
- Over the past year we'd come to the conclusion that we were spending too much money on stuff that we didn't need, and have severely curtailed our spending habits (largely to pay off the aforementioned home equity loan, which will be done next month). We've discovered that we actually enjoy scrimping and saving, and intend to build a large savings cushion over the next few years.
- As far as extra income, after bills, etc. I'd say that we safely have somewhere in the realm of $2000 - $2500 extra every month. Maybe a little more -- we increased our yearly income recently by about $10k, which we haven't taken into account in our budget yet.
- We have no children, nor any plans to have any. Most of our large remodeling projects on the house are done, other than one that we hope to do before we refinance, that shouldn't cost more than $5k. I don't expect us to have any other major life changes coming up soon, although my husband is thinking about getting his master's degree in the next year or two.

What I need to figure out is an approximation of how much our mortgage is going to go up every month (and the best way to keep that to a minimum while still getting a "regular" non-ARM loan), and still allow us the capability to set aside a decent amount into savings every month, and maybe a couple hundred for spending money.


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RE: Dave Donhoff - refinance questions...

The money which we loan to a bank, or borrow from them, e.g. owe them on a house, is "principal".

The systems by which the world works, or one governs one's life, is "principle".

o j


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RE: Dave Donhoff - refinance questions...

Darn. I spelled it correctly initially, looked at it, said to myself, "That can't be right! That's the guy who runs a school." and changed it to principle. What can I say? If you're not used to dealing with financials, it's not a word you use a lot.


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RE: Dave Donhoff - refinance questions...

Hi Rivkadr,

OK, great! This may take a good bit of back & forth, doing it this way.... which is apparently fine if you're in no particular rush anyway.

More questions;
Itemize your current liabilities, and for each;
Balance, interest rate, amortized term (or minm pymt determination method per their agreement.)

Itemize your appreciating assets, and for each;
Current market value, current growth rate, any access restriction periods.

Itemized monthly living cost budget.
Total current cash-type account balances.
Benefit values for each of your life insurance coverage (and cash values if you have that.)
Benefit values for each of your disability coverage.

What is your personal realistic exepected growth situation for your home over the next 10 years?
Expected average annual rate of growth, 10 years? Total growth in dollars?
What is your personal realistic expectation for income growth over the coming 10 years?
What is your personal realistic expectation for your securities investment growth over 10 years?
What is your personal realistic expectation of interest rates (charged and earned) over 10 years?

You currently say you have $2,000 - $2,500 'extra' each month.

Tell me, of the FIRST 'extra' $1,000....
how many dollars would you typically choose to send toward;

$____________ Add to Reserve Cash earning 0%, saving 0%

$____________ Deposit to a safe "No Touch for at least 10 years" tax-sheltered retirement account earning a compounding 5%

$____________ Permanently surrender (for at least 10 years) into your mortgage principal, saving a 5% after-tax savings rate of interest,

$____________ Invest in High-Opportunity/High-Risk fully-liquid taxable securities account

$____________ Spend to enjoy life

Of the SECOND $1,000;

$____________ Add to Reserve Cash earning 0%, saving 0%

$____________ Deposit to a safe "No Touch for at least 10 years" tax-sheltered retirement account earning a compounding 5%

$____________ Permanently surrender (for at least 10 years) into your mortgage principal, saving a 5% after-tax savings rate of interest,

$____________ Invest in High-Opportunity/High-Risk fully-liquid taxable securities account

$____________ Spend to enjoy life

Rank the following value in your mutual married order of priority (1 most important, 3 least important);

_______ Safety/Security

_______ Control

_______ Returns/Savings


What is your estimated current NET Worth?
(Total cash-sellable value of everything you currently OWN, minus everything you currently OWE.)

In general, how comfortable are you with risk to your net worth?

In general, do you objectively measure & quantify your risks?
If you do, how to you hedge against your risk exposures?

If you do not, WHY do you not?

How much of your liquid investment accounts are you comfortable exposing to risk of loss?
How much of your non-liquid retirement accounts are you comfortable exposing to risk of loss?
How much of your home equity are you comfortable exposing to risk of loss?

Enjoy!
Dave Donhoff
Strategic Equity & Leverage Planner


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RE: Dave Donhoff - refinance questions...

Hello.... Rivkadr... you still out there?


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RE: Dave Donhoff - refinance questions...

Hi Dave,

Still here. But I fear some of your questions are a bit over my head; I'm not even sure how to answer some of them, to be honest.


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RE: Dave Donhoff - refinance questions...

Hi Rivkadr,
NO WORRIES.... since we're all anonymous here (or at least you are ;~) go ahead & run down from the top & ask what each question is actually asking.

I *FULLY EXPECT* a lot of folks (except Ol Joyful & Annie) are themselves wondering "why on Earth is Dave asking for ANY of that stuff, let alone ALL of that stuff... why not just "sell Rivkadr a mortgage" plain & simple."

As we gather up the details I've named, I'll explain the various ways they balance out & the effect they have on each other, and the importance of how they fit in together with your total family leverage (the combinations of your total debt instruments that allow you to own or control your assets & risk-coverage instruments.)

So.... as with music, you can really choose to start anywhere... but its usually easiest to start from the top.

Dave Donhoff
Strategic Equity & Leverage Planner


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RE: Dave Donhoff - refinance questions...

Okay, so some clarifying questions, then. I expect I will sound very stupid, but please recognize that I generally don't deal with money matters too much myself, so a lot of this is over my head.

1) Itemize your current liabilities, and for each; Liabilities, I assume you mean things like student loans, mortgages, etc? i.e. stuff we owe money on.

2) Itemize your appreciating assets, and for each; What would an appreciating asset be? Are these like stocks? We don't own anything like that anymore. We have my husband's 401k -- does that count?

3) What is your personal realistic exepected growth situation for your home over the next 10 years? Expected average annual rate of growth, 10 years? Total growth in dollars? I have no idea how I would estimate things like that :( I have no clue on most of your growth rate questions (except maybe our expected income -- I can hazard a guess on that).

4) What is your estimated current NET Worth? Can you have a negative net worth?

I just reran our budget; due to my husband's job changes and a raise on my part, we're actually making an extra $3500 a month. Does that change your little form up above at all?


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RE: Dave Donhoff - refinance questions...

Hi rivkadr,

Okay, so some clarifying questions, then. I expect I will sound very stupid, but please recognize that I generally don't deal with money matters too much myself, so a lot of this is over my head.

PUHLEAZE!!!! You deserve (and GET) my sincere respect for so MANY reasons!!!!
A) You're willing to OPEN your MIND to serious financial topics (and not just swallow the emotional poop passed down from those who've never tried to understand!)
B) You're willing to be completely OPEN WITH YOUR DETAILS (even if anonymously... you have no idea how many people are afraid of simply being real, even when nobody can know who they really are!!!)
C) You are SO GENEROUS to do so out in the open on a public message board, where your learnings can be silently read and absorbed by others who WISH they had your guts!!!!!!!!!

I cannot emphasize enough THE HONOR YOU DESERVE for taking this on, step by step, out in the open!!!

TRUST me when I say, there are MANY folks who feel much "dumber" about their questions... and hate the fact they haven't had the courage to step out like you are. Your COURAGE trumps all... and it is the ONLY way anyone gets "smart!"

OK, with your questions;

1) Itemize your current liabilities, and for each;
Liabilities, I assume you mean things like student loans, mortgages, etc? i.e. stuff we owe money on.

Exactly... make a laundry list for us here. If you have a recent credit report it will show much of what we are asking about... otherwise gather up your monthly bills.

Example;
$461,356 1st mortgage, (pull out your NOTE to check on the following,)
5 yr ARM in 3rd year, (amortized, or interest-only?)
Start date was July X, 2005
Initial Fixed rate is X%
Margin is 2.25 (or it is 2.75, or other?)
Index is 1 month LIBOR (or 6 mo LIBOR? 1 yr LIBOR? Treasury index?)

$45,356 Student Loan, consolidated from multiple loans,
Interest rate is X%, minimum payment required is $YYY (or a % factor, if you know,)

$12,486 Provident Visa card, 8.9% rate, 2% of principal minm payment
(By the way... the 2% of principal is the standard minimum payment for revolving credit.)

$8,594 Ford auto financing, 3.5% rate until 1/1/2010, then 8.9%. 8 year loan, minm req'd payment $x,xxx

You get the idea...

2) Itemize your appreciating assets, and for each;
What would an appreciating asset be? Are these like stocks? We don't own anything like that anymore. We have my husband's 401k -- does that count?

Appreciating assets are real estate, stocks, mutual funds, bonds, cash-value life policies, pensions, annuities, securities held INSIDE your 401(k), IRA and ROTH accounts, and similar.

Non-appreciating assets are your non-cash-value (term) insurance policies of all types, anticipated inheritances, business ownership, personal effects (tools, furs, jewelry, etc.)

3) What is your personal realistic exepected growth situation for your home over the next 10 years? Expected average annual rate of growth, 10 years? Total growth in dollars?
I have no idea how I would estimate things like that :( I have no clue on most of your growth rate questions (except maybe our expected income -- I can hazard a guess on that).

That is really *OK*!!!!!! When the answer is "I have no idea" it triggers some follow-on questions;
(And its perfectly acceptable to "cheat" by asking realtor friends, checking Zillow, or Googling your local negihborhood name along with the keywords of "appreciation rates in Irvine" (or wherever.)

Are you familiar with the past longterm trend of real estate in your area? If so, what was it?

Do you believe that the future longterm trend will be significantly different? If so, in what way?


4) What is your estimated current NET Worth?
Can you have a negative net worth?

Unfortunately, yes... in fact the MAJORITY of the general public has a negative net worth. That happens when the total cash value of everything you own (and could sell,) is less than the total repayment balance of all the debts that you owe.

I just reran our budget; due to my husband's job changes and a raise on my part, we're actually making an extra $3500 a month. Does that change your little form up above at all?

That doesn't change the questions (especially the "divvy up your 1st and 2nd extra $1,000,) but it does give you some extra growth power, which is ALWAYS a good thing when you know how to employ it most effectively.

ONCE AGAIN... I HONOR YOU FOR YOUR UP-FRONT COURAGE!!!!
(I suspect you are "giving" people a great deal in this exchange!!!)

Cheers,
Dave Donhoff
Strategic Equity & Leverage Planner


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