Refinancing My Mortgage - Part One

I added up all my debts, how much the minimum payments were, and the amount of interest I was paying every month and when compared to my income, it looked very unlikely that I could even continue to make all the minimum payments.  Obviously, I have to pay a lot more than the minimum due each month or I will never reach the goal of being debt-free.

I made the decision that I would refinance my mortgage and try to get enough money to pay off some of my high interest credit cards.

I’ve heard of a lot of people doing this in recent years and I had hoped I would never have to do this.  I never wanted to treat the equity in my house as an ATM.  My goal was to build a house, finance it for 30 years, and if we got our finances in good shape we would pay it off a little early.

I don’t recommend refinancing your home unless you really think you need to do it to avoid bankruptcy.  The reasons I don’t like doing it are:

1. I’m adding years to my mortgage.  I have paid for over 12 years, so I had less than 18 to go.  Now I’m back at 30 years again.
2. I’m not reducing debt with this move, just moving it.  Actually, I’m increasing it when you consider the loan closing fees.
3. I am doubling my mortgage payment.  If I let the other debts get too high again, I’ll have an even harder time making the payments, and no equity to fall back on.  This HAS to work THIS time!  I’m working without a safety net now!

Like I said before, after weighing the options, I decided that although it’s not the perfect solution, it gives me the best chance to change my spending patterns. Here is what I like about it:

1. My total payments required each month will decrease.  I should be able to make all the minimum payments easily and have enough left over to make a large payment on one of the debts each month.  I’ll eliminate the big credit cards with the refinance loan and then create a “debt snowball” (I’ve been reading a lot of Dave Ramsey lately) with the smaller ones and work on them.
2. There will be fewer payments to make each month and I really feel the need to simplify things.
3. I didn’t have an escrow for my property taxes or homeowners insurance included in my previous mortgage.  We always paid those separately.  The homeowners insurance always came due in September and half of the property taxes had to be paid before December 31st.  The second half had to be paid in March.  By including them in with our payment, it should be easier to stay on a more steady budget.

I applied for the loan online and was contacted by a loan representative by telephone in less than an hour.  She asked me some of the same questions I had already answered online and then some more questions like “How much do you think your house is worth?”.  I really had no idea what to answer there, so I told her my insurance company had it insured for $119,000 but that I didn’t know how accurate that is.  She said the insurance companies are usually close and asked me how long ago the insurance company had evaluated it.  I told her they sent a man out earlier this year to photograph it and that’s when the raised the value to what it is now.

She told me they could probably offer me a loan of $113,000 which would pay off the house and the six biggest credit card debts.  She wasn’t making a formal offer, just giving me an estimate.  She then sent me an email showing me what debts it would pay and what the approximate payment would be.

She also sent an “Authorization To Release Information” form for me to sign and return.  This gives all my creditors permission to share information with the loan company so they could verify all the information on my loan application.

Another email came giving me a list of items to gather and fax to her.  In order to get the loan approved and closed, she said she would need:

• Homeowners insurance declaration statement showing the coverage on the home.
• Insurance Agent’s name and phone number.
• Name and phone number of the contact for verification of current employment for each applicant.
• 30 days consecutive pay stubs for all applicants.
• W-2 forms from the last two years from all our employers.
• Current mortgage statements with account number and the contact name and phone number.
• Copy of valid driver’s licenses for each applicant.

It took me a couple days to gather all that information and I sent it all via fax.

Please see “Refinancing My Mortgage - Part II” for more of my story.