Refinance Application in Progress

I applied for a refi of my 30-year-fixed mortgage with my credit union yesterday.  My monthly payment would be $200 less per month, which would mean… that my renters would be covering one mortgage in full!  This makes me very happy, even though I’ve stayed away from relying on the rent check and just throw it into savings.  Best to treat it as if it doesn’t exist and live below my means even more.

I hope the mortgage application goes smoothly. I refinanced my smaller mortgage with the same credit union a few months ago, so I can’t imagine why there would be any problems with this one.

Salon has an interesting, if somewhat lightweight, article called My Big, Fat, Unpaid Credit Card Bill. If you read a lot of personal finance blogs or are in debt yourself, it’s nothing you haven’t read before, but it’s still worth reading.  This point most resounded with me:

“When my lease is up in April, I’m moving somewhere much cheaper and getting a roommate, and I hope to halve my rent. This is the painfully obvious step I’ve been avoiding all along. Ever since I moved to New York, my apartment has been a great source of personal satisfaction for me. I had it all to myself. I could let visitors stay anytime. And when they stayed, they always said the same thing — how big it was, how lovely it was, how I was really making it in New York. I loved hearing that more than anything. But it wasn’t really true. Even then, I knew it.”

Halving my rent would help me a lot.  This is, as mentioned above, because I’m using the monthly rent from my renters to build my emergency fund, and thus paying for my condo and my apartment out of my regular (i.e., salary) income.  If I used the checks from my renters to pay for housing, then having two places isn’t an issue.  I will soon be moving in with my boyfriend (still primarily a romantic decision rather than an economic one, I assure you).  My monthly rent dropping from $1,450/month to $850/month is, however, an additional benefit, no two ways about it.

If I weren’t moving in with my boyfriend, I’d be looking for another roommate and, like the Salon writer, not looking forward to it too much.  I’ve had so many roommates, most of whom were not easy to live with.  They didn’t pay bills, they ate groceries they didn’t buy, they didn’t clean, etc.  But I’m paying too much for housing right now – Mint.com tells me so, with their nifty feature in which you can compare your spending in certain categories to those of others in different cities.  Granted, I’m paying more than anyone else anywhere but I’m paying for two places – but I don’t have to pay as much!

Refi the Big Guy?

Drops in interest rates are about the only thing we homeowners have going for us right now. Like most, I’m wondering whether or not to refinance my 30-year, fixed-rate mortgage.

I have two mortgages, a big one with most of the balance and a small second one. Refinancing my smaller second mortgage was one of my 2007 goals, since it had a whopping 11+% interest rate. My credit union charged a $150 application fee and no other closing costs, so that refinance was a clear win.

With the recent rate drop, I’m considering refinancing the big mortgage, currently at 6.5% with a balance of $231,500. Since rates are almost a full point lower than my 6.5% refinancing seems like a good idea, but I wanted more information on how to accurately calculate that. Closing costs (if any) can cost a few thousand dollars.

How do you know if a refinance is worth it? Fortunately, Bankrate has a handy article and calculator for just this purpose. Bankrate says:

“To figure out whether it’s in your best interest to refinance, you need to calculate your break-even point. The break-even point is the time it takes to make up in monthly savings what you paid in fees. You calculate it by dividing the mortgage fees by the monthly savings. For example, let’s say you would save $100 a month by refinancing, and the closing costs would be $3,000. Your break-even point is 30 months from now: the $3,000 in fees divided by the $100 a month in savings.”

The duration of time for which you plan to inhabit your home also counts (for example, if it’s less than the 30 months given in Bankrate’s example, it may not be worth it). With my unpredictable, nomadic life, I can’t even think about any estimate approaching validity, so I’m going to ignore that part.

So what is my break even point?

I used the Bankrate calculator to run two examples, with and without closing costs:

Example One: No Closing Costs! Happy Land!
Here’s the example with only a $150 application fee, like last time:
New monthly payment: $1329.77
Monthly savings: $207.23
Difference in interest: $56,160.13
Total cost: $150
Months to recoup costs: 0.7

Example Two: Closing Costs Like When I Bought
Even with closing costs of about $3,000 (which is what I would have paid, had my wonderful real estate attorney not made the developer pay instead), the break-even point still isn’t far away:
New monthly payment: $1329.77
Monthly savings: $207.23
Difference in interest: $56,160.13
Total cost: $3,000
Months to recoup costs: 14.5

Looks like the refinance is well worth it even if I only own my condo for a little more than one more year. Feb. 11 is the day I can get my free annual credit report again. Looks like it’s time to get the ducks in a row again, and continue to wonder how long I should wait to see if interest rates drop again…

The Group Dinner Divide

You know what I’m talking about: You go out to eat with a group of friends. You, of constant cash vigilance and frugality, know exactly what you’re spending at dinner. Perhaps you have a budget, and opt out of an appetizer. Perhaps you have water instead of that $8-$12 glass of wine. Whatever your strategy, you’re tracking the price of that dinner as you order and eat it.

Your table mates? Not so much. They order with abandon. The bill comes. Eyes (not yours) widen in surprise. And at least a few people hand over money that doesn’t cover their share of an appetizer or dessert, the coffee they forgot about drinking, tax, and tip. You, on the other hand, are not only frugal but ethical. Perhaps, like me, you’re a former waitress or waiter… who would never short the waitstaff or the restaurant, even if it means you end up paying much more than your fair share. And you do, and the evening ends in seething anger. In the end, you’ve ended up paying for the steak and glass of wine you didn’t get to enjoy anyway.

This happened last night and the night before, and I haven’t yet found the ideal strategy for dealing with it, one that doesn’t seem rude, that can be delivered with grace and without drawing attention to the moochers.

On Friday, we went out to eat with four friends, one of whom I know is notorious for under-paying her share of the bill. She pays for her entree and only her entree, and the appetizers and desserts she shared, the drink she drank, the tax and the tip, are not even considered. My strategy this night was to grab the bill and remind everyone of what we’d shared – two appetizers, one dessert. I added up the total cost of shared items, tax, and tip and divided by six. Everyone was pleased with this, except my friend, who grudgingly added $15 to the $20 bill she’d first attempted to hand me. She ended up paying her fair share, and I didn’t have to call attention to her in particular.

Last night ended in my boyfriend and I making our anger known. We went out with a large group (14 people) for a friend’s birthday. My boyfriend and I did not order wine, and most people did. We did not order dessert, and most people did. I combined a salad and appetizer for my entree, which cost $10 less than a real entree.  And then, someone who happened to grab the bill before I did suggested we divide the bill equally.  Excuse me?  In addition, a few folks added what they “thought” they owed, without actually looking at the bill… and walked out.

After much debate, with others besides me pointing out that it was unfair,  the bill still came up $40 short.  Most people sat around and stared and, per usual, another couple and us fixed the problem with our own money.  Though we’d already overpaid, I ended up throwing in an additional $20 (which was $6 more than my food cost, in addition to what dear boyfriend had ALREADY overpaid).  I made my anger VERY clear to my friend and we walked out without saying farewell to any of these people.

Upon sitting down at a restaurant, I used to immediately tell the waiter or waitress “Separate check for me, please.”  As a former waitress, I know it can be a pain, but I don’t know what else to do.  This is the only strategy I’ve found that makes things clear and stops post-meal debate – and ensures I pay only what I owe.

How about you?  Do you have creative group-dinner strategies?

God Bless the CPA!

I wasn’t always this way. I didn’t mind taxes so much that paying them infuriated me. But, a few years ago, a switch went off: Until I get to decide, in a tangible and meaningful way, how my taxes are spent, I’m not paying as many taxes as I can. Until my taxes go to repair our old-world infrastructure, universal health care, and education, I’m done.

So I did what the rich people do. I hired a CPA this year, and after our meeting this morning I can officially say it was a sound decision.

My CPA brought my income down from $100,000 to $65,000 and there was NO fact fudging. Here’s how:

• $15,000 in rental loss for my condo (All true: my renters are not nearly covering the mortgage.)
• $5,000 in relocation costs
• Mortgage interest from two mortgages (the large and the small, and with that rate drop, I should probably refi the big guy)
• Property taxes
• State income tax

Combined, this brought my adjusted gross income (AGI) down to $65,000, a very different story than $100,000. Based on all of this, I can *anticipate* (it’s not filed yet!) a total refund of $4,400 (across the federal and two state taxes). I never thought I’d see a refund this year.

For fun, I paid (OK, wasted, fine) $20 at H&R Block online to compare what I would have done on my own. Not even close. Paying an expert less than $100 an hour will be well worth it if I see that refund. A refund of $4,400 would automatically bring my emergency fund *almost* to its $10,000 target (to $8,400 based on the $4,000 in my emergency fund today). Swoon.

Trying not to get my hopes up…

Newly Minted Resolutions

I need to update this blog more frequently. I will.

I’ve started 2008 off on much better financial footing than I had for most of last year. Unlike last year:

• I have no credit card debt.
• I don’t owe my ex-boyfriend any more money for legal fees ($1,000).
• I refinanced a fixed-but-high interest rate second mortgage without closing costs, saving lots of money over time.
• I have $3,500 in savings, which will soon be $4,000, which will cover my 2006 property taxes the bank paid.
• Find someone to do my complicated taxes (I have!).
• I didn’t buy a car for another year, and avoided all of those expenses.
• My only debt now is student loans and my house, which is as it should be.

Which brings me to financial goals for 2008:

• STAY out of debt.
• Save 20% of my income ($22,000, or $1,800/month) between emergency and retirement savings (probably $12,000 to 401(k) retirement, which puts me below the $101,000 ROTH income limit so I can put… $4,000 into a ROTH, plus $6,000 to emergency savings). This is EXTREMELY ambitious given what I pay for housing right now, but if I move in with dear boyfriend, as we’re discussing, I may just make it.
• Have at least $10,000 in emergency savings by the end of the year. This should not be difficult since I’m approaching $4,000 right now, so $10,000 is the bare minimum.
• Pay $100 extra to principle on my second mortgage every month.
• Continue to use Mint.com to track spending (which shows I’m spending more than I think and estimate in my head).
• Do not buy a car for another year.

It may be too ambitious, but I have to aim high!