What to Expect When Refinancing Your Mortgage

This post is part of an ongoing series on getting my financial house in order.  In this post I’m going to cover all the ins and outs of refinancing your mortgage and talk about my most recent refinancing experience.

I bought my home in 2004 and since then I’ve refinanced it twice.  The first refinance was in 2007 and my goals at the time were to switch from an adjustable rate mortgage (ARM) to a fixed rate mortgage,  get rid of private mortgage insurance (PMI), and switch to a 15 year loan so that I could save money and pay the house off quicker.  I just got done refinancing again and this time the goal was to simply reduce my interest rate and save even more money.  These are all great reasons to consider refinancing and if any of these sound like things you’d want to do, read on and I’ll walk you through the process.

Getting Your Ducks in a Row

When you’re applying for a loan you’re going to need to have some info on hand.  These are the key bits:

  • Loan amount (how much you want to borrow, likely the payoff of your current loan).
  • Approximate value of your home (get this from Zillow.com).
  • Do you want an escrow account with your new loan?  Your escrow account is the account that your lender uses to pay your property taxes and homeowners insurance with. You will probably want one and your lender probably requires it anyway.  There doesn’t seem to be any benefits to paying these yourself anyway unless you’re trying to game the tax system by timing your property tax payments so that two land within the same tax year.
  • When did you buy your home and what did you pay for it?
  • About how much do you pay per year in property taxes (you can usually get this online from the county assessors office or from your current lenders escrow statement).
  • Do you currently pay for a homeowners association (HOA) and if so what does it cost monthly?
  • Employment history for the last 5 years or so (employment start dates, how much you made, etc).
  • How do you intend to pay for closing costs?  Closing costs will be in the neighborhood of $2,500-$3,500.  These can probably be rolled into the new loan, but if you can, pay for them with cash on hand so that you’re not paying interest on that money.
  • What are your expenses (credit cards, loans, and leases)?  You don’t need to put in things like monthly utility payments here, these are generally expenses like other debts you’re paying on.

Next you need to figure how long you want your new loan to be for.  You want to try and get the shortest loan you can afford, but also consider how long you really intend to keep the loan.  For example, if you know that you’re going to move in 5 years, you might opt for a 5/1 adjustable rate mortgage (ARM) (5 years locked interest rate, then changes every year thereafter).  Sometimes the ARM loans have lower interest rates than the fixed rate loans, but sometimes they don’t, so compare both.  In general I like to stick with fixed rate loans but everyone’s situation is different.

So how do you figure out what you can afford?  Use an amortization calculator to calculate out what your monthly cost would be.  My favorite calculator is this guys.  Get the shortest loan that you can afford.  You will save a ton of money that way.  Here’s a comparison to illustrate:

Loan 1: $100,000, 30 years @ 4% interest
Loan 2: $100,000, 15 years @ 4% interest

With loan 1 your monthly payment would be $477.42 (not including your escrow amount) and if you were to keep the loan the full 30 years you would have paid a total of $171,871.20 for the loan.

With loan 2 your monthly payment would be $739.69 (not including escrow) and you’d end up paying $133,144.20 for the loan.  In other words, if you can swing another $262.27 a month, you could cut your loan length in half and save $38,727.00 in interest!

Another thing to consider when choosing loan length is that you can almost always make additional principal payments without penalty.  Where this comes into play is when a lender is offering a really great rate on say a 20 year loan, but you really only want a 15 year loan.  If you’re disciplined and make additional principal payments, you could pay the 20 year loan off in 15 years and the overall cost might end up lower.  Here’s an example:

Loan 1: $100,000, 20 years @ 3%
Loan 2: $100,000, 15 years @ 3.5%

Loan 1 would be $554.60 per month and cost you a total of $33,104.00 in interest.  Loan 2 would be $714.88 per month and cost you a total of $28,678.40 in interest.  Now let’s say you went with the first loan.  If you paid an extra $138.00 per month you’d have the loan paid off in 15 years and your total monthly payment would still be lower than loan 2’s payment.  You’d also save $8,893 in interest by paying it off earlier, bringing the total interest cost down to $24,211.00, that’s a savings of $4,467.00 compared to loan 2.  I used this calculator to calculate the early payoff savings.

Shopping for a Lender

Before you go submitting a bunch of applications, do some shopping around.  You should narrow your search down to a few lenders before you apply because you don’t want to reduce your credit score by applying at a bunch of places.  Oh, and don’t do anything that would mess with your credit in general, like open up a new credit card or get a new car loan.  Lenders do a last minute credit check before finalizing your new loan and anything that has changed since you applied for the loan will throw up a red flag and slow things down.

For my refinance I decided to go with Pentagon Federal Credit Union (PenFed).  I learned of them a few years ago when shopping for a car loan and I’m so glad I stumbled across them.  They are a no-nonsense type of credit union.  Low rates, good customer service, no added frills or schemes to rip you off.  Prior to PenFed I was using Desert Schools Credit Union for my mortgage and auto loans.  They’re fine too, but PenFed’s rates are better and their web site isn’t stuck in the stone ages like Desert Schools’ is.  My advice would be to shop around different credit unions and check out some of the rates listed on bankrate.com, then compare them to PenFed.  I think you’ll like PenFed.  BTW, you don’t have to be a member of the military to join PenFed, you can make a one time donation of $15 to a charity when signing up to become a member.

When comparing loan offers, you’ll first want to look at the Annual Percentage Rate (APR).  The APR basically factors in the interest rate of the loan, some of the closing costs, and any discount points you pay so that you can get a better idea of what the loan is really going to cost you.

I just mentioned discount points, so lets explain what those are.  The general idea behind points is that you can pay a “point” to reduce the interest rate of your loan.  Each point represents 1% of the total amount you’re borrowing, so if you’re borrowing $100,000, each point will cost you $1,000.  If you can afford to pay points and the reduction in interest will save you some money, go for it.  However, pay close attention to the overall APR because sometimes the lower interest rate doesn’t save you any money after all.  For example, here are two different loan offers I found from the same bank, one with points and one without:

Loan 1: $100,000, 10 years @ 2.625%, no points.
Loan 2: $100,000, 10 years @ 2.375%, 2.875% points.

Loan 1 is going to end up costing $13,806.80 in interest if you kept the loan the entire 10 years.  Loan 2 is going to end up costing $12,443.60 in interest plus you need to pay an extra $2,375.00 for the points, so overall loan 2 is going to cost you $14,818.60, which is more than loan 1.

You also want to try and get an idea of the closing costs that the lender is going to want to charge you.  Sometimes lenders will give you an estimate before you apply, sometimes you have to wait until the application has gone through and the lender has provided you with a good faith estimate which breaks out the closing costs.  Again the APR should give you a general sense of their closing costs, just know that lenders don’t always include all of their closing costs in the APR.

Applying for the Loan

Now that you’ve got your ducks lined up and a potential lender or two picked out, it’s time to submit your application.  When I applied through PenFed, I just submitted the application online.

One of the things they asked me for was a debit or credit card that they would charge for any third party fees like running my credit check.  If you apply at a few different places you might have to pay for a couple credit checks at about $10 a pop, but normally that cost is rolled into your closing costs if you go through with the loan.

Another thing they asked was whether or not I wanted to lock in my interest rate.  I personally am not much of a gambler, so I like to lock in the rate right away.

They also asked if I was interested in making bi-weekly payments versus monthly.  I think there is nothing wrong with doing bi-weekly payments, just know that all you’re really doing is making an extra small payment each year.  You’ll shorten the loan a little bit and save a little on interest, but most lenders will also let you just do additional principal payments whenever you want or include an additional principal payment with your monthly payment too.  I’d rather control when I make the additional payment then get locked into a payment plan.

After you’ve submitted your application, if you’ve been pre-approved, you should get some paperwork from the lender explaining the details of the loan application.  The most useful document you’ll get is the Good Faith Estimate (GFE).  The Good Faith Estimate shows the general terms of the loan and forces the lender to disclose any shady type stuff they might be trying to pull, like charging prepayment penalties and anything that might change your interest rate during the loan.  Another piece of useful information on this form is the origination fee.  That is the amount of money the lender is charging you up front to give you the loan.  You should also see a breakdown of your other settlement charges, like home appraisal, title insurance, and the initial deposit for your escrow account.

One thing that can be confusing is settlement charges versus closing costs.  When you are comparing loans and the lender gives you an estimated closing cost, these are generally the things they include in that number:

  • Loan origination (what the bank charges to give you the loan)
  • Points you pay to get the loan
  • Home appraisal
  • Credit report
  • Tax service
  • Flood certification
  • Title insurance
  • Government recording

However, they don’t generally include things like:

  • Initial deposit for escrow account
  • Daily interest charges

So when you’re comparing closing costs between lenders, you’ll want to exclude things like escrow charges and daily interest charges.  One thing to note here too is that you’ll likely get some money back from your current lender when you pay off the existing loan because they’re going to refund you whatever was already in your escrow account.

Another thing to be aware of is how the daily interest charges work.  First we’ll look at daily interest charges on your existing loan, this is separate from the interest charges on your good faith estimate.  Let’s say you currently pay your mortgage payment on the 1st of each month.  You apply for your refinance loan on June 1st and your loan ends up closing on June 15th.  Your current lender is going to want you to pay off the principal balance of your loan plus any daily interest between your last payment and when you actually paid off the loan, so in this case 15 days of additional interest.

Now we can look at the daily interest charges on the good faith estimate.  These are interest charges for the days between when the loan closes and the day that your first mortgage payment is due.  Usually banks will make your first payment due on the first of the month following a full month from your closing date.  For example, if your loan closed on June 15th, your first mortgage payment would be due on August 1st.  The reason they throw a full month in there is because mortgage interest is paid in arrears, so your August payment will actually be paying for July’s interest.  What happens to those 15 days left over in June?  Those are your daily interest charges that the good faith estimate is talking about.

Processing Your Loan Application

The next thing that should happen is that you’ll be assigned a loan processor.  This is the person which is going to walk you through the rest of the loan process.  When I applied at PenFed, my loan processor asked me send him the following:

  • Copies of my most recent pay statements.
  • Copies of the last two years W2s.
  • Bank statements from the last two months.
  • Verification of liquid assets that I’d use for closing costs.  In my case this was coming out of my checking account.
  • A copy of my homeowners insurance policy showing PenFed and the new loan number within the mortgagee clause.  I had to call my insurance company and actually switch this over to PenFed.
  • An HOA statement showing that I’m current on my homeowners association dues.

The loan processor also arranged to have a home appraisal done and I received a call from the appraisal company within about a week or so to schedule their visit.  The appraisal guy came out and checked out the property and took a few pictures.  He was there maybe 30 minutes.

Once your loan processor has everything and has processed it all, they should sent you a Settlement Statement (HUD-1) that breaks down all the near-final figures for your loan.

Closing on the Loan

Once the loan application has been completed, your loan processor will ask your current lender for loan payoff statement.  It’s a good idea to ask your processor for a copy of this for your records.  When I received a copy of my loan payoff I noticed that my old bank was charging a $25 payoff fee and a $10 recording fee.  Of course my loan with them was supposed to have no prepayment penalty, so I don’t know how they can get away with charging a payoff fee, but not worth worrying about.

The final step is to sign all the loan paperwork and finalize the loan agreement.  Generally you go down to the title insurance company and sign all your paperwork.  This time around, since PenFed is their own title insurance company and they don’t have any branches where I live, they arranged to have a third party company handle the signing.  The company they used gave me the option of meeting them somewhere or just coming out to my home.  I opted to have them come out to my home which worked out great.  My wife and I signed a mountain of paperwork and it was done.  Refinance your mortgage achievement unlocked!

Final Thoughts

For me the entire process took about a month.  I refinanced my 15 year loan @ 6.125% (I had 7.5 years left on it) into a 10 year loan @ 2.75%.  When it was all said and done, I paid $3,680.58 out of pocket at settlement: $2,537.71 in closing costs and $1,142.87 in prepaid items (escrow items and daily interest).  I got back about $800 from my previous lender when they refunded what was in my old escrow account.  I also had a month where I didn’t have a mortgage payment of about $1,300 too, so really I only had to float about $1,500 overall and I should make that back from the savings on my new loan within 5 months.

Personal Finance – Getting My Financial House in Order

I’ve decided to revive this blog once again in order to start a new series of posts I’m calling “Getting My Financial House in Order”.  The reason for my sudden interest in personal finance and frugality arrived after noticing that my little nest egg/buffer fund wasn’t recovering from our spending like it normally did.  I investigated further and learned that we were spending about $1,000 more than I earned each month.  Yikes!

So how did I end up so upside down?  Well, long ago I decided that the best way to handle money was to simply have enough of it stuck aside that I wouldn’t really have to watch it that closely.  As long as I didn’t let our spending get out of control, I figured we’d be in good shape.  I came up with that nonsense back when I was young and living paycheck to paycheck.  Back then all I wanted to do was not have to worry about being broke all the time and stop the overdraft fees.  Fast forward 15 years to today and that way of thinking just isn’t cutting it.

Over the last 15 years I did do a few things right though.  I cleaned up my credit report a long time ago and today I don’t have a single bad mark on it (I’m pretty proud of that).  In 2007 I refinanced our mortgage into a 15 year loan, so we’re already down to 7.5 years left on it.  My wife’s car is paid off and my car is half paid off with a low 2% interest rate on the loan.  Other than the house and my car, we have no other debt.  I think we’re in better shape than most, but we’re a family of 4 living off of one income, so things are still tight.

My goal in all of this is to reduce our spending, find some ways to save or earn some extra  money, start building that nest egg back up, and start putting some real money towards retirement.  Below are some of the things I’ve done so far.  I want to write a separate post for each item and I’ll add links to this list as I add the posts.

  • Refinanced my mortgage (again)
    I reduced my interest rate from 6.125% to 2.75% which will save me almost $7,000 even after figuring in closing costs.  It also reduced my monthly bill by $300 which frees that money up for other things, like contributing to my IRA.
  • Re-evaluated all of my bills and expenses
    I ditched cable TV ages ago and saved some money by switching the home phone over to a VOIP service, but I was also able to save a few more dollars by cutting out some unnecessary stuff, consolidating my home owners insurance and car insurance to one provider (Geico), and changing to a 6 month payment plan with them.
  • Sold some stuff I didn’t use/need anymore on eBay and Craigslist
    Selling stuff on eBay has gotten so easy that there really isn’t any reason to unload your old stuff on there.  I was able to earn about $300 just by clearing out some stuff that had been sitting in the closet collecting dust.
  • Started actively monitoring our spending with Mint.com
    I considered other budgeting software options, but for now Mint fits the bill.  I’m able to easily see where all the money is going and pull up trends to see if we’re really saving any money.
  • Consolidated my retirement accounts
    I finally got around to rolling over all my old retirement accounts into a new account with Vanguard.  Along the way I learned a lot about expense ratios, index funds, and IRAs which should help me maximize my retirement earnings potential.
  • Adjusted my federal tax withholding
    I usually withhold more during the year so that I get nice big tax return, but that’s dumb.  Why not take that money and invest it throughout the year so that it’s earning you more money?
  • Started using rewards credit cards
    I decided to get a couple of credit cards so that I could earn some cash back.  I went with one card that gives me 5% on gas and groceries and another card that gives me 2% on everything else.  According to my calculations this should earn us about $60 per month.
  • Started contributing to a Roth IRA for myself and my spouse
    I thought I was going to be limited to $5,500 in contributions per year to my IRA, but found out that I could also contribute $5,500 for my spouse, awesome!
  • Started using GasBuddy to save on gasoline
    I carpool to work and I even telecommute one day a week, but we still spend about $200 a month on gasoline.  On the days that I drive, I’m driving about 130 miles round trip to go to work and back.  It doesn’t help that my car requires premium gas too.  GasBuddy helped me find a few gas stations near work and home that save me about 20 cents a gallon.  Doesn’t sound like much, but when you burn through something like 60 gallons a month, it adds up.

Some other things I’m considering doing that I haven’t yet tried out:

  • Switching to a high deductible health insurance plan and opening a Health Savings Account (HSA)
  • Couponing more
  • Buying discount gift cards (GiftCardGranny)
  • Buying grocies in bulk (CostCo, Sam’s Club)
  • Calling my current service providers and negotiating better rates
  • Using Amazon Subscribe and Save or Amazon Pantry

Stay tuned and I’ll update this post with links as I add more posts to the series.

My Review of the Sager NP9130 (Clevo P151EM1) Laptop

I bought a Dell XPS M1530 about 4 years ago and it has started showing it’s age.  It runs hot, battery life sucks, and my dad spilled soda on the keyboard a long time ago and the home key has never been the same.  My search for a new laptop started several months ago and I’ve had a really tough time finding something that had everything I wanted.  At first I really wanted to get something like a Macbook Pro.  I love the solid aluminum body and the build quality on the Macbook…but I have no love for Apple.  I looked at Dell, Asus, and even checked out the HP Envy which attempts to be a carbon copy of the Macbook, but nothing was floatin’ my boat.  I really wanted something that could handle some gaming, which narrowed down my choices on a laptop.  You can’t really get something sleek and lightweight and play games on it, right?  Mostly true, but I found a pretty good compromise: Sager.

Who is Sager?

First let’s talk about Clevo.  Clevo is a Taiwanese company that manufactures laptop chassis.  System builders all over the world source their chassis from Clevo and then customize them with their own components (CPU, memory, hard drive, etc).  The largest system builder in the US that uses Clevo chassis is Sager.  There are plenty of other Clevo system builders in the US though, including Malibal, Mythlogic, OriginPC, and Falcon Northwest.  It’s interesting to look at each builder’s site and see all the different customizations they make.  OriginPC and Falcon Northwest are both “boutique” builders and customize the look of their laptops with paint jobs and fancy shells.  In addition to Clevo system builders, there are also several Sager resellers which are generally cheaper than buying directly from Sager.  In the US these include Xotic PC, LPC Digital, and Power Notebooks.  For a more complete list of builders and resellers worldwide, check out the Clevo guide on Notebook Review.  System builders generally provide their own customer support while Sager resellers will likely have you send your machine in to Sager if you ever need warranty work.

What attracted me to Sager:

  • Their gaming laptops don’t look like gaming laptops.  Do you really want to show up to a business meeting with a glowing red alien logo on the back of your laptop?  I don’t.
  • They offer a lot of customization.  Have you tried customizing a Dell lately?  The configuration options on their XPS laptops are nearly non-existent.  Sager lets you select everything down to what thermal compound they use on the CPU and GPU.  You can also order your laptop without Windows installed which saves you money if you already own a license.
  • They offer the latest tech.  Intel’s Ivy Bridge processors are just starting to show up in desktop machines, but nothing for notebooks.  I was able to get the latest Ivy Bridge chip from Sager months before the major laptop manufacturers had them.  They also had the latest gaming cards all the way up to the top of the line.
  • They are very competitively priced.  For the money, it’s tough to beat a Sager.  I compared prices with many of the big name manufacturers and they didn’t come close on price.  Most Sager resellers offer free shipping and no tax as well as discounts if you pay by check or money order.

The NP9130

I wanted to stick with something relatively portable, so I went with a 15.6″ screen.  Besides the awesome graphics card on the 9130, I also liked that it had the fingerprint reader, the SD card reader, and that it supported nVidia’s Optimus technology which helps save on battery power. I also thought it was cool that the video and power ports were all on the back, which keeps a bunch of cables off of my desk when I have the laptop hooked up to my monitor.  The air vents for the CPU and GPU are also on the back, which seems like a good design.

This is the configuration I went with:

  • 15.6″ Full HD LED backlit glossy screen (upgraded to the 95% color gamut screen)
  • Intel i7-3610QM processor (Ivy Bridge, up to 3.30 GHz)
  • 8GB DDR3 1600 MHz memory
  • 120 GB Intel SSD hard drive
  • nVidia GeForce GTX 670m 1.5 GB GPU

I also ordered the IC Diamond thermal compound, swapped out the CD/DVD drive with a secondary hard drive caddy, bought a second battery, and chose to remove all the Sager branding.  I purchased my Sager through LPC Digital and was able to get a discount code after contacting them by e-mail.  My order total came to about $1,400, but $100 of that was the spare battery, so it was only $1,300 for the laptop, which I thought was a really good price.  I used online bill pay to have my bank send the check directly to LPC Digital, so I got the cash discount and it really wasn’t that much trouble.

First Impressions

My order came within a week or so and everything was packaged nicely.  I love the look of this laptop!  It’s matte black all over and has no branding on the lid.  I even took off all the stickers, so the only branding left on it is the Onkyo logo on the keyboard deck.  The styling has a hint of stealth bomber going on, but overall it’s just a clean looking laptop.  I like how the touch pad is sort of integrated into the deck so that there are no hard edges to get dirt and goo stuck in.  I wasn’t sure how I’d like the chiclet style keyboard, but I really like it.  The keys have a solid feel to them, kind of like those old style mechanical keyboards.  The screen has a glossy bezel which I wish was matte like the rest of the laptop.  The glossy finish picks up smudges and scratches very easily.  It also came with fairly crappy carrying case, but I don’t really care about that.

I was concerned that the hard drive caddy wouldn’t look stock since I had read that the CD/DVD drive plate was re-used, but I was relieved to find that the plate is just plain black and looks great.

Everything feels pretty solid, but I did notice that when I set the laptop down you can hear the thin plastic of the vents on the bottom kind of slap against the internals of the laptop.  I think they could have thrown some padding in there to take care of that.  Other than that, everything is top notch.

The glossy screen looks really nice, but right off the bat I noticed a stuck pixel.  A bright red pixel smack dab in the center.  I contacted LPC Digital and they provided a pre-paid UPS label to use for returning the laptop to Sager.  Sager had it back to me within about 1 week and the new screen looks fantastic.  I wanted to mention that I did not purchase the additional dead/stuck pixel insurance and LPC Digital/Sager still took care of me.  In my opinion the optional insurance is not worth it.  If you do end up with a stuck pixel and they won’t replace the screen, then you can still just return the laptop within 30 days to get your money back (minus return shipping).

After Using it for a Couple Weeks

I have no regrets after buying this laptop.  I installed a second hard drive (500 GB) into the caddy and that worked out great.  Installing Windows and the drivers was fairly painless, the only hitch I ran into was that sometimes I’d get an error when trying to boot from a USB drive.  If someone runs into a boot error, just try another USB port.

I love that this thing doesn’t cook my lap.  I can comfortably work for hours from my couch and the bottom of the laptop is barely warm.  In fact, the warmth is probably from my lap, not the laptop.  Of course if you’re gaming, it’s probably going to heat up a bit, but I game at my desk.

The fingerprint reader works great, no problems logging into Windows with the swipe of my finger.

The touch pad supports gestures like two finger touch and drag to scroll up or down, but it doesn’t really work.  I fiddled with it for a while, but it just seams flaky, not as good as Apple’s.  The integrated touch scroll bar works great though, and I actually prefer using that anyway because you don’t have to lift your finger off the pad to continue scrolling, you just move your finger in a circle either clockwise or counter-clockwise to continue scrolling.

The speakers are not fantastic.  I think they are actually a little off center, so everything seams a bit weighted to the right.  What they call a “subwoofer” really isn’t going to push out any low tones…but I didn’t really expect much from the speaker system anyway.  I uninstalled the THX software too…I don’t think any amount of software is going to improve the sound on crappy little laptop speakers.

Battery life has actually been pretty dang good.  I can easily get 2-3 hours of battery time when using the laptop for every day tasks.  I haven’t really timed it closely, but I can definitely tell that I get much more life out of it than on my old laptop.  To be fair, the battery life probably isn’t stellar when compared to other modern laptops, but this thing is a powerhouse, so I don’t expect the battery to last as long as an ultrabook.

I love the SSD drive.  It is super fast and silent.  Photoshop launches within a few seconds and nearly every other application comes up nearly instantly.  This thing is fast.  I loaded up Skyrim and it automatically set itself up for “ultra high” settings and the game plays at 1080p without a hiccup.  While playing games I will say that the fans do get a bit noisy…I have open back headphones I can hear the fans going during quiet scenes.  Fortunately the GPU fan only kicks on when you’re playing games that need that extra power and you really can’t expect the thing to be silent when you have a higher end GPU.


Besides having to have the screen swapped out, I have been very satisfied with this laptop.  You really get a lot of computer for your money and there are tons of configuration options.  I would definitely check out Sager or any of the other Clevo builders if you’re looking for a high-end gaming notebook or just a quality laptop.