Knife-Catcher: Year One Recap of Tim’s Home Purchase

The Tim's Home

With a full year of home ownership/debtorship under my belt as of yesterday, I thought it would be fun to share a few highlights, stats, and thoughts from the first year.

First up, the financial highlights:

  • Initial Loan Amount: $179,950
  • Current Loan Amount: $171,043
  • Principal Paid: $8,907
  • Interest Paid: $8,357
  • Insurance Paid: $596
  • Property Tax Paid: $3,022
  • Repairs: $308
  • Improvements: $636
  • Appliances: $2,468
  • Total Spent in Year One: $24,294

That’s $2,025 a month, but when you back out the $8,907 we paid down on the mortgage, the monthly “down the drain” expense drops to $1,282—hundreds of dollars less than we would have been paying for a comparable rental.

Most of the money we have spent so far on improvements was on a wooden fence my brother-in-law and I built for the dog around part of the yard (visible at right in the photo above). The only repairs we’ve had to do so far have been minor things like replacing lights, fixing gutters, and the leak issue I mentioned a couple weeks ago. In the appliances department, we had to buy a clothes washer and dryer when we moved in, and the only other things we’ve purchased have been an upright freezer I got for $175 off Craigslist and a new, larger water heater.

One expense you might have noticed is not listed above is furniture. That’s because we haven’t bought any. Many people seem to use buying a home as an excuse to throw out their perfectly good furnishings and blow thousands of dollars on all new sofas, dressers, desks, beds, and tables. We opted to just keep using what we already had.

I never turned off my daily Redfin listing alerts (in fact, I upgraded them to instant), so I’ve been seeing every home in the area that’s come on the market in the last year. So far there hasn’t been a home for sale that I wish we would have waited for. In fact, save for one or two total junker bank-owned houses, no homes have hit the market nearby for under $300,000 with as big a lot, a garage, and similar square footage to our home, let alone with a nice, clean, dry, 7-foot or taller basement. There are definitely plenty of nicer / bigger homes than ours in the neighborhood, but lately it’s mostly the smaller homes that have been coming on the market.

Since we plan to pay off this home and keep it indefinitely, I don’t really care what it’s “worth” right now, but for those of you that do care, Zillow’s current black-box computer-generated guess of my home’s value is $218,700 — about three percent less than we paid a year ago, and $48,000 more than we still owe.

Speaking of paying off my home, at the rate that we’ve been paying down our 30-year mortgage, we’ll have it completely paid off by October 2025, just 14.5 years into the loan, saving over $89,000 in interest. Sweet.

So far the first year has been good to us, and we don’t regret having finally made the jump. Of course, that still doesn’t mean that it’s a great time for everyone to buy a home. Whether or not it’s “your time” to buy still depends on your personal finances and stage in life.

What else would you like to know about our first year?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

77 comments:

  1. 1

    Oh, so the “You paid too much for the house, paid too much in commissions, live too close to sex offenders thread” is going to be an annual event? ;-)

    Seriously, good job paying down that mortgage!

  2. 2
    deejayoh says:

    Interesting that your purchase of the home doesn’t seem to show up in the zillow transaction records.

    Are you really really really sure you own it?

  3. 3
    The Tim says:

    RE: deejayoh @ 2 – Yeah, Zillow’s data is pretty lousy. Full of holes. The sale is right there in the Snohomish County public record, plain as day.

    One of the many reasons I put so little stock in Zillow’s computerized price guesses.

  4. 4

    For all anybody says about Everett, they do have some excellent pizza. Brooklyn Brothers, downtown. I also hear great things about the Chilkdren’s Museum in Everett.
    You obviously like your house and are glad you bought it. But how do you like the environs? Everett treating you well? Any special places there worth noting for our south end know nothings?
    I had to be in Everett a couple of times recently, and I have to say that DT Everett is a lot nicer and more vibrant than it was 10, 15 years ago. We don’t have that many old cities in the Seattle area. Old cities have this coolness thing , this history that newer cities can’t touch, and Everett just has this cool old waterfront town funkiness.

  5. 5
    The Tim says:

    By Ira Sacharoff @ 4:

    You obviously like your house and are glad you bought it. But how do you like the environs? Everett treating you well? Any special places there worth noting for our south end know nothings?

    We love it. During the Aquasox short summer season it’s fun to be able to take just a couple-block stroll and catch some minor-league baseball. And just a bit further in the opposite direction is Comcast Arena, where we’ve been able to enjoy hockey and roller derby.

    One of my favorite stories was when we went to an Aquasox game last July. Our seats weren’t getting as much sun as I expected, and I was getting pretty cold… so I walked home, grabbed a jacket (and a few snacks), walked back, and only missed a grand total of about half an inning.

    As you mentioned, downtown is nice as well. We’ve enjoyed having so many dining options within walking distance, and there are a good handful of fun little shops downtown as well.

    We have met most of our neighbors, and while some of them are interesting characters and a few are fairly antisocial, most of them are nice enough and certainly quiet enough. I’ve been getting involved with our neighborhood association as well, and it’s been nice to get to know some people in the broader neighborhood that way.

  6. 6
    BD says:

    Tim, curious about your decision to pay down your principal faster. Many folks, if able, do the same and I certainly have accelerated loan repayments in the past as well. However, given the record low mortgage rates at present, why not deploy the cash someplace else that could provide some return?

    From a psychological standpoint, I totally understand wanting to be “free and clear” sooner, but from a cold financial standpoint, is your personal “cost of capital” that low? As a corollary, is the prospect of having inflation doing the “heavy lifting” of repaying your mortgage an attractive prospect?

    Thoughts?

    Thanks.

  7. 7
    The Tim says:

    RE: BD @ 6 – Great question. While there may indeed technically be places I could put my money that would earn greater than a 4.75% return (my fixed mortgage rate), paying down my mortgage is zero risk.

    For me, being completely mortgage-free (you know, actually owning my home) and dropping my monthly housing expenses to just a few hundred dollars a month is a very attractive prospect, and one I’d prefer to reach as soon as I can. My parents got there by their early 50s, and if I can hit that goal by 45, I’ll be pretty pleased.

    There’s just something about living with zero debt that is incredibly freeing.

  8. 8
    Ray Pepper says:

    Classic West Seattle/North Tacoma look..Love the colors too. Those homes also look great all white..not sure I like the fence you and your brother built…looks a bit off…………..

    I disagree, AS ALWAYS, with paying down the principle at these rates….because afterall…………….its just one extra bill along with water, sewer, garbage, electricity, taxes, insurance, yard, cable, internet, general maintenance, etc..It goes on and on…One extra bill at these incredibly low rates is nothing…But, most of all its all about asset protection and having a paid off mortgage without the protection of an asset wrap sets yourself up for a HUGE potential loss as the equity rises..

  9. 9
    Tim McB says:

    RE: The Tim @ 7

    The Tim. Have you penciled out doing a refi? 4.75% seems a bit high in this environment. Seems like you could get an even lower rate (something around 3.75% on a 30 year and a little over 3% on a 15 year) and pay off the principal even faster.

  10. 10
    Scotsman says:

    Ah, the funriture issue. I can’t believe anyone pays retail for furniture. Put $1,000 cash in your pocket and hit Craigslist on a Saturday at the end of the month (moving time!) and you can go home with $10,000 worth of excellent stuff.

  11. 11
    S-crow says:

    RE: The Tim @ 7 – The Tim, paid off by 45?? Don’t let life happen my friend, LOL. Make sure you don’t create offspring that go to a private school for several years and don’t do sports (baseball, horse western gaming/racing or basketball -$100 sneakers every 4.5 mos, not to mention uniforms, fund raisers, sponsorship’s, camps, horse gear, etc and traveling all over the state ,Oregon, Montana to sports tournaments and horse competitions; then Prom and College–(graduating kid in a few weeks). Your goal is good and I have no doubt you will get there, maybe sooner.

  12. 12
    wreckingbull says:

    By Ira Sacharoff @ 4:

    and Everett just has this cool old waterfront town funkiness.

    Yes. For anyone who has not poked around on the waterfront, do it. The old drayage buildings and warehouses are very cool. Not a bad boat ramp either.

  13. 13
    David Losh says:

    Cheap money is only a good factor in an appreciating Real Estate market.

    Using cheap money to pay your rent would be a loss.

    If the price of the home goes down that cheap money is an added burden. There again if rents decline the cheap money is an added burden.

    Tim is doing it right. If he refinances he loses his place in the amortization schedule, and has to start over. He should actually be front loading his payments to principal so it amortizes quicker.

    What you left out was the purchase price, and loss of opportunity of the down payment.

  14. 14
    Dweezil says:

    Kudos on getting more mileage out of your old furniture.

    Having experienced one year at your place, how is the commute treating you?

    And one thing I worry about moving from an apt to a SFR, is burglary. I feel like my stuff is safer while I am away with people coming and going. Any worries, or extra measures you’ve taken? Maybe the dog is effective enough on his own. And no, I’m not casing your house =).

  15. 15
    Lily says:

    Hey Tim,
    It’s time for you to do a refi! You can get a 15 year for 3%, probably at no cost. You don’t really need the 30 year since you said you are on track to paying it off in 15 years.
    Try the rates on http://www.provident.com, and be prepared to send a lot of paperwork. You’ll probably save >$1000 a year on interest even after tax.

  16. 16
    The Tim says:

    RE: Tim McB @ 9 & Lily @ 15 – We probably should look into refinancing to knock a point off our rate, but we intentionally chose not to go with a 15-year mortgage because having the 30-year gives us some breathing room if things go south. Right now we’re paying enough extra principal that the total amount we’re paying on our 30-year roughly amounts to what our payment would have been on a 15-year. But if I lose my job or some other large expense arises, we can immediately knock $500 a month off our payment to free up those funds for other uses. If we had a 15-year mortgage, we wouldn’t have that ability.

    RE: S-crow @ 11 – All those things you mentioned are the reason we bought well below what a traditional affordability calculator suggests that we could “afford.” Even with making our extra payments on the mortgage every month, the budget still has plenty of breathing room.

    By Dweezil @ 14:

    Having experienced one year at your place, how is the commute treating you?

    Thanks to the Sound Transit 510 express bus, it’s great. 5 minute walk to the bus, on the bus for 40-50 minutes (most of which is freeway, minimal stops) during which I get an early start on the work day or work up the day’s post on Seattle Bubble, then a 5 minute walk to work. On the way home I get to catch a TV show on Netflix or get some more work done…

    Since I get a seat 99% of the time it’s basically an extension of my time at the office. In fact, I’m writing this very comment from the bus right now. My median commute is 58 minutes in the morning and 60 minutes in the evening (yes, I’m tracking this in a spreadsheet), but 45 minutes each way is productive time on the bus, so I’m only “throwing away” about 15 minutes on either side, and most of that is at least a little redeeming in that I’m getting mild exercise walking up the Seattle and Everett hills. For me, this commute is far preferable to one where I’d spend 20 minutes in the car each way.

    And one thing I worry about moving from an apt to a SFR, is burglary. I feel like my stuff is safer while I am away with people coming and going. Any worries, or extra measures you’ve taken? Maybe the dog is effective enough on his own. And no, I’m not casing your house =).

    The dog probably helps, but the house is also wired with an alarm system with triggers on the doors and windows, along with motion detectors. Plus I picked up a set of HD security cameras that keep an eye on things and allow me to pull up a live view of my house from my phone. It’s pretty sweet.

  17. 17
    pfft says:

    Nice house. Nice to see you live in a neighborhood with a sidewalk. not sure I would buy a house w/o one.

  18. 18
    redmondjp says:

    By pfft @ 17:

    Nice house. Nice to see you live in a neighborhood with a sidewalk. not sure I would buy a house w/o one.

    Yes, this is one thing that really bugs me about a lot of the houses in the northern areas of Seattle (and let’s not even talk about the buried 100-year-old pipes that are still in use).

  19. 19
    Feedback says:

    Congratulations, Tim, on your first anniversary. All of the decisions you’ve made have been right.

  20. 20

    Tim Get’s an A+ From SWE

    He’s paying down his principle as fast as he’s paying out interest!

    What a guy.

  21. 21
    No Name Guy says:

    The Tim – you’ll LOVE it when you’re done with that Mtg. For all my bearishness on the financial aspects of buying today, it IS satisfying to OWN the home free and clear. The peace of mind knowing your cost of shelter is trivial going forward is truly liberating. As you approach that day, do ALL the major maintenance items you can – replace the roof (full tear off), repair any siding issues, paint, etc and your heavy maintenance for the next 10+ years will be negligible.

    Funny to me anecdote on paying off the mortgage: I walked into Chase last year. Told the banker type I’d like to pay my mortgage. Dude gets it all set up (I’m looking out the window for these couple of minutes, not paying attention to the details of what he’s doing). Banker dude set it up for the approximate one grand of a monthly payment, slides it across for me to sign. I look at it and say, “Sorry for the misunderstanding, I’m here to pay the mortgage, not make a mortgage payment. As in pay it………in full.” Banker dude reworks it…..I walk out free and clear a few minutes later. A highlight day of the life.

    Also – very sensible on how you worked the 30 year / 15 year payment thing. More people should do that to keep margin in their finances to be able to react to the unexpected. And yes…..4.75% guaranteed is a pretty good return in my book – like a team that hits single, after single, after single….not nearly as exciting as a home run, but it’ll win the game reliably.

  22. 22

    By No Name Guy @ 21:

    Also – very sensible on how you worked the 30 year / 15 year payment thing. More people should do that to keep margin in their finances to be able to react to the unexpected.

    I would agree, and have done the same thing on car loans. Setup as 5 and paid in 3 or less.

  23. 23
    Lily says:

    RE: The Tim @ 16
    Hey Tim,
    With interest rates so low, I plugged in your info to Provident and the calculator says payment is only $1,200 a month, $400 more than the 30 year and probably not much more than your current 30 year minimum payment. If you are worried about future shocks to income/expenditures, you can get a home equity line of credit for emergencies. Personally, I have more than 1 year of expenses saved up in short term investments, so I am very comfortable with the 15 year. Also, I don’t benefit much from the tax deduction, so the difference between 3.75% and 3% is actually significant.
    Anyways, even if you go for the 30 year, you should refi as soon as possible! Your current 4.75% rate is insane! Go through Provident if you want the best rates and don’t mind providing a TON of documentation.

  24. 24
    MichaelB says:

    Not sure about your ROI calculations…as the amount you pay down on the mortgage is only realised when you eventually sell. Funny, I thought it was all about the monthly payment and so-called “affordability”.

    Hard to believe you can’t buy anything comparable around there for less than $300k…What’s driving the price appreciation in Everett? Is it that in 2008, Everett was ranked with the 54th highest crime rate in the United States, being the highest crime rate in the Pacific Northwest outside of Tacoma? Or possibly that in 2008, Everett had 1,183 car thefts? No, it must be that the city also had 76 rapes, or 78.7 rapes per 100,000 people, twice the national average rate of 32.2 rapes per 100,000 people. Or is it the crappy public schools? The one hour bus commute to Seattle? The Gang Bangers, s.e.x offenders, grafitti?…no wonder you can’t find anything decent around Everett for less than $300k.

  25. 25
  26. 26
    deejayoh says:

    RE: Lily @ 23 – I got my loan from Provident and can second your comment about their documentation requirments. But I think that is standard post meltdown practice to document a loan that will be sold to Fannie/Freddie .

    Based on that experience I feel like it takes more than “just breathing” to get a loan these days (as someone asserted earlier).

    That said, I do expect to see more commercial lenders reentering the market and writing loans for their own “book” – which can only increase the pool of qualified buyers. Just yesterday I noticed that BECU is a sponsor on NPR and announcing that they are “now offering Jumbo mortgages”. I don’t bank with them, but my impression based on the ad was that this is a product they have not been offering.

    Perhaps some of the folks who work in the mortgage business can share their insights? I would love to hear notes from the field.

    Tim: Maybe a topic for a future post?

  27. 27
  28. 28
    Magnolia44 says:

    Congrats on the first year, We are in the same “we dont care what its worth now boat” as well and have been really since day one. Difference here is in the 4 years of ownership the improvements have hit $50k+ but man it feels good to kick the feet up and call this place home. We have also added 2 children, have fun all!!

  29. 29
    ChrisM says:

    RE: deejayoh @ 27 – Can you elaborate? I’m using PaleMoon (Firefox variant) but I’m not clear on where this gets installed – on the website???

    I agree, I would *love* such a feature.

  30. 30
    The Tim says:

    RE: ChrisM @ 29 – I would have to install it on my end. The problem is that specific plugin is for bbpress, which is a forum powered by WordPress, not WordPress itself. I looked, but haven’t found a decent similar plugin for WordPress.

  31. 31
    David Losh says:

    RE: Lily @ 23

    The bank is always the enemy, and you just want them out of your life as fast as possible. The deal is done, and now Tim is doing the right thing of paying down the principal with having the thirty year payment option.

    If he could get a no cost refi, great, take that at the reduced interest rate, but if it costs money, it’s just more loss.

    There is no magic about a bank loan, or interest rate. You borrow money to pay it back. The bank always wins, it’s just best to be done with them.

  32. 32
    David Losh says:

    RE: deejayoh @ 27

    add it to the thumbs up, and downs.

    Lack of moderation is what made this site great. There were a lot of people who have been proved correct, over time here.

  33. 33
    wreckingbull says:

    RE: The Tim @ 30 – I have used Greasemonkey in the past to remove certain users from the comments. My script broke a while ago when something on your site changed and I never bothered to fix it.

    Personally, I find it easier to just continue scrolling down. Sometimes the trolls can be rather amusing, too.

  34. 34
    mukoh says:

    Tim, Congrats. That sounds like a well priced place to live.

  35. 35
    Jonness says:

    By The Tim @ 7:

    While there may indeed technically be places I could put my money that would earn greater than a 4.75% return (my fixed mortgage rate), paying down my mortgage is zero risk.

    That rate seems high to me. I can get a 3.5% no points fixed right now. Have things really changed this much in a year?

    At 4.75, I would probably be prepaying the loan. At 3.5, I would probably be sitting on it and waiting around for the bond vigilantes.

  36. 36
    The Tim says:

    By Jonness @ 35:

    That rate seems high to me. I can get a 3.5% no points fixed right now. Have things really changed this much in a year?

    Yup, a little over a year ago when I locked in my rate, the average 30-year rate was right about a full point higher than it is today, according to the weekly rate data from the Federal Reserve.

  37. 37
    David Losh says:

    RE: The Tim @ 36

    How could that be a good thing, especially when people here are encouraging a refinance?

    How many people have refinanced into lower rates, and put off paying down the loan? Is that a good thing, or does that keep prices higher?

    I mean, in theory, every year the interest rate could go down a point to zero, and people could refinance every year to get that better rate.

  38. 38

    By Jonness @ 35:

    By The Tim @ 7:

    While there may indeed technically be places I could put my money that would earn greater than a 4.75% return (my fixed mortgage rate), paying down my mortgage is zero risk.

    That rate seems high to me. I can get a 3.5% no points fixed right now. Have things really changed this much in a year?

    I won’t comment on the how much, but I will comment that rates have dropped significantly.

    I would also point out that when you refinance that quickly, if you recalculated the APR on the old loan for a one year period instead of a 30 year period, the APR would be much much higher. But in any case, you need to compare the APR of the old loan (as originally stated) to the APR of the new loan.

  39. 39
    Mr. Big says:

    Tim — what rental price would your home get if you rented it out today? What has the been the rental price trend in relation to your home?

  40. 40
    Rumpole says:

    Tim, congratulations on your year of satisfaction with your purchase, great to hear. Being happy with both the financial and emotional sides of a transaction can be rare, I’m always glad when that works out.

  41. 41
    deejayoh says:

    RE: Kary L. Krismer @ 38 – Thanks to this thread I decided to look into a refi. Don’t know why I hadn’t before, but managed to lock at reduction of 7/8 of a point with no fees. Why wouldn’t you?

  42. 42

    By deejayoh @ 41:

    RE: Kary L. Krismer @ 38 – Why wouldn’t you?

    The main reason is it starts the 30 years all over again, but a disciplined borrower can deal with that by making extra payments.

    The other concern is “no fees” might not be no cost. Often the costs of the loan are added into the new balance.

  43. 43
    deejayoh says:

    By Kary L. Krismer @ 42:

    By deejayoh @ 41:

    RE: Kary L. Krismer @ 38 – Why wouldn’t you?

    The main reason is it starts the 30 years all over again, but a disciplined borrower can deal with that by making extra payments.

    Well, it was really a rhetorical question – but I’ll bite.

    Unlike Tim – when large sums of money are loaned for long periods at 3.75%, I am in no hurry to pay them back. I am not of the camp that says that this low interest rate environment can last. When any variable is 2 or more standard deviations outside of the norm, people should know it’s more likely to move toward the norm than it is to deviate further.

    The other concern is “no fees” might not be no cost. Often the costs of the loan are added into the new balance.

    Yeah, I should say what I got was really no net fees, since there are origination fees but they were covered by a points credit. I could have gotten a slightly lower rate by paying points – but given that I was able to lower my rate pretty substantially at zero up front cost (and my outlook on long term interest rates), I doesn’t seem worth it to pay out $ given the payback period. But nothing was added to the balance.

  44. 44
    No Name Guy says:

    By Kary L. Krismer @ 42:

    By deejayoh @ 41:

    RE: Kary L. Krismer @ 38 – Why wouldn’t you?

    The main reason is it starts the 30 years all over again, but a disciplined borrower can deal with that by making extra payments.

    And discipline is the key to achieving financial independence of any kind – paying off a mortgage early, getting out of debt (so called “good” like student loans, or “bad” – any other consumer debt), setting aside for a rainy day and retirement, etc.

    A smart, disciplined borrower in The Tim’s position would use the lowered rate / payment as an opportunity to keep their total monthly payment (what they must pay + what they’re paying extra) the same.

    The Tim, no doubt, is toward the disciplined end of the spectrum.

  45. 45
    The Tim says:

    Okay, okay. You guys have convinced me. I’m looking into refinancing. Looks like I’ll be able to save $20,000 to $30,000 over the next 13 years (about how long it would take to pay off the loan) by doing so, without modifying what I’m paying out every month right now (counting the extra principal I’m paying). Seems like a no-brainer.

  46. 46
    David Losh says:

    RE: deejayoh @ 43

    With that outlook you certainly should refi.

  47. 48
    The Tim says:

    By Mr. Big @ 39:

    Tim — what rental price would your home get if you rented it out today? What has the been the rental price trend in relation to your home?

    Obviously I can’t really know for sure how much my home could rent for without actually trying to rent it out, but similarly-sized homes near-ish to mine have asking rents on Craigslist that seem to cluster around $1,600, but I did find one as low as $1,300. (samples: $1,695, $1,300, $1,600, $1,575, $1,575).

    Zillow’s “Rent Zestimate” is currently $1,464, which is basically flat from a year ago, for whatever that’s worth.

  48. 49
    Azucar says:

    RE: No Name Guy @ 47

    Great job putting the numbers to the various options… when people (like Losh) argue against refinancing to a lower rate, they talk a lot in generalities like “it just resets the 30 year clock so you have to make payments for longer” without considering the lower payments, or what effect continuing to make the higher payment amount has on the term of the loan.

    Great job showing exactly how the different payment options affects the actual payout – especially the part about putting the extra cash into a “mortgage lump sum payoff” fund.

  49. 50
    David Losh says:

    RE: Azucar @ 49

    You should really pay attention to what I’m saying. The bank is the enemy. Extending the time you pay the bank is a gift, to the bank, and helps to keep housing prices high.

    In 1984 I was making $24K per year, and my first house cost me $34K, nice neighborhood, but the house needed work.

    In 1986 I was making $70K and my house cost $86K, great neighborhood near Northgate.

    Now if you are paying four times what you make per year, you are doing good?

    Banks, and these games we play with financing, is what keeps the price of all things inflated, including housing.

    It’s best to be done with the banks as quickly as possible, that is what will make the housing market stable.

    In my example, what if Tim refinances this year, and next year rates drop another point and a half, should he refinance then?

    I agree with No Name Guy, and what he has outlined, it’s very sensible, what isn’t sensible is to continue to play games with the banks.

  50. 51
    Jonness says:

    By The Tim @ 45:

    Okay, okay. You guys have convinced me. I’m looking into refinancing. Looks like I’ll be able to save $20,000 to $30,000 over the next 13 years (about how long it would take to pay off the loan) by doing so, without modifying what I’m paying out every month right now (counting the extra principal I’m paying). Seems like a no-brainer.

    If you have 30% equity and a min 780 FICO, you should be able to get a 3.5% 30-year fixed from Columbia Mortgage in Gig Harbor.

  51. 52
    David S says:

    Are you all throwing out the APR when you say things like 3.5%? Because the APR is the out the door rate on these loans.

  52. 53

    RE: David S @ 52 – I don’t track rates closely, but assuming it’s a fixed rate, then likely it’s the nominal rate. Earlier I said you should compare the nominal rate of the existing debt (note rate) to the APR of the new loan, and noted that upon refinancing if you recalculated the APR of the old loan for the short term, it would skyrocket.

  53. 54
    wreckingbull says:

    RE: David Losh @ 50 – Not sure what your salary history has to do with any of this (WTH is it with people talking about their salaries publicly, anyway?) , but I am glad I live in a society with banks, current bad behavior and all. Try living in a country without a banking system. I don’t think you will enjoy it.

  54. 55
    Ray Pepper says:

    RE: David Losh @ 50

    ummmmmmmm….NO….Anybody lending me money at 3.5% is not an ENEMY…I would call them a very good friend and take as much of it as I could, and extend the loan out as FAR as I can. 99 years If possible!!!!!!…Give me a lifetime loan at 3.5% with a mill or two and I’m VERY good to go…

  55. 56
    MichaelB says:

    By Kary L. Krismer @ 25:

    RE: MichaelB @ 24RE: Kary L. Krismer @ 1 – And it starts.

    Kary Krismer is a blog bot

  56. 57

    By Ray Pepper @ 55:

    RE: David Losh @ 50 -ummmmmmmm….NO….Anybody lending me money at 3.5% is not an ENEMY…I would call them a very good friend . . ..

    They are neither an enemy or a friend.

    In the real world some people have wealth, but don’t want to invest it directly in active projects. They would rather lend the money out in return for interest. Other people have projects that they want to do, but insufficient wealth to do it, and they would rather get $1,000,000 today in return for paying $1,500,000 (or whatever) over time. It’s a mutually beneficial relationship, and also a relationship which is good for society because the first person’s wealth is not just sitting idle and the second person has resources made available by which they can create additional wealth.

    Despite that mutually beneficial relationship, their positions are still adverse, but not so adverse they are enemies. That only comes along once the second party can’t pay! ;-)

  57. 58
    David Losh says:

    RE: wreckingbull @ 54

    It’s the relationship of the price to income. Like everything, the price of the product, housing in this case, goes up with “cheap” money, or low monthly payments.

    The price of housing is allowed to remain high because of these lower, and lower payments.

    Payments, and interest rates, as we saw in Japan, can also go lower. Does that mean we should refinance into lower, and lower payments while the price of housing remains the same?

    In all of those calculations about the lower payment, and the money you save there is nothing about the price of the property to begin with, or if the price of the housing is sustainable. What happens to the calculations if the price of property goes down?

    The only way to insure an equity position is to pay off the Note. The longer you extend the payments the more you pay for the property.

    At double or triple your income how likely is it to get the home paid off? Back in my day it was pretty easy, and a complete no brainer that didn’t require calculations. You bought property with the idea you would pay it off.

    These low payments have changed the landscape of home ownership.

  58. 59
    David Losh says:

    RE: Ray Pepper @ 55

    You don’t want to do that Ray. What you want is to pay cash, and have more cash than you can spend in a life time. You want income without out go.

  59. 60
    Ray Pepper says:

    RE: David Losh @ 59 – No David…with residential housing there is ALWAYS “out go” and eliminating one 3.5% payment is without question a HORRENDOUS investment practice with current tax laws and if nothing else equity loss prevention.

    But, afterall this is the Seattle Bubble and what I discuss is simply on another level so go ahead everyone pay off your 3-4% mortgages and be happy!

    Also, Kary ANYONE lending me a MILL or 2 at 3.5% for 99 years will IMMEDIATELY become my BFF and soar to the top of my list of friends..HANDS DOWN!

  60. 61

    By Ray Pepper @ 60:

    Also, Kary ANYONE lending me a MILL or 2 at 3.5% for 99 years will IMMEDIATELY become my BFF and soar to the top of my list of friends..HANDS DOWN!

    LOL. If your life expectancy was only 14 years, you could borrow 2M and live on 1M with that deal! That’s over $71,000 a year, tax free!

  61. 62
    Tim McB says:

    RE: The Tim @ 45

    Congrats. Smart move and a decent money saver, especially if you’re goal is to payoff the balance quickly. At this point I’d agree the payment flexiblity is worth probably worth the extra .5 to .75% difference in rates. We refi’ed last fall from 5.0% to 3.75%; it pays to have good credit.
    Its funny to think just a few years ago people were signing up for “pick a payment” mortgages that not only did nothing to your principal but added to it if you didn’t “pick the right payment.”

  62. 63
    Azucar says:

    By David Losh @ 50:

    RE: Azucar @ 49

    You should really pay attention to what I’m saying. The bank is the enemy. Extending the time you pay the bank is a gift, to the bank, and helps to keep housing prices high.

    In my example, what if Tim refinances this year, and next year rates drop another point and a half, should he refinance then?

    I agree with No Name Guy, and what he has outlined, it’s very sensible, what isn’t sensible is to continue to play games with the banks.

    But what you seem to overlook is that, while refinancing to a lower rate (for the same term… say refinancing your existing 30 year mortgage that you’re a year or two into with a new 30 year mortgage) ALLOWS you to extend the time that you’re paying to the bank, it doesn’t REQUIRE you to. In fact, if you keep up the same payments IT SHORTENS THE TIME that you’re paying to the bank. Provided the new rate is low enough to make it a good idea to refinance, it gives you the flexibility to either pay it off sooner at the existing monthly payment OR have a reduced payment and pay for longer.

    If the rates continue down, at some point it WOULD make sense for the Tim to refinance again, even if it continues to extend the amount of time that the loan could theoretically be outstanding. If it allows the loan to be paid off SOONER provided he keeps making the same payments, then refinancing puts the flexibility into the hands of the borrower – either pay less (say if life circumstances make it hard to keep up the higher payments) for a longer time OR continue to pay at the rate that you were paying and be done sooner.

    That’s what the calculations that No Name Guy were showing…

    “If they refi into the stated in the comment thread available 30 year at 3.50% at their current principal (171,050) AND he ups the extra payment to $668 (which keeps the monthly at $1439) he’ll have it paid at about Month 159 (starting from his first payment on the current loan), 14 months earlier.

    If on the other hand he kept the extra payment at $500 (still on 171,050 current balance and at 3.5%) he’d make the final payment at about Month 184 (starting from his first payment on the current loan), 11 months later than his current trajectory, but would be pocketing about $168 a month for extra consumption” (or savings).

  63. 64
    David Losh says:

    RE: Azucar @ 63

    I understand the concept, and in Tim’s case with just one year into the loan it would make sense.

    What I’m seeing is a pattern of refis to get those really good rates, but most people don’t have the stated goal of paying off the home in thirteen to fifteen years. They just play the game, and the bank wins.

  64. 65
    ChrisM says:

    RE: David Losh @ 58 – I think I understand your position. At some point the property taxes become more of a consideration than the mortgage payment.

    Assume a property can either sell for 100k @ 6% interest, or 300k @ 3.75% interest, assuming a 30-year loan. Well, if you pay the loan off, you still have the property taxes in perpetuity.

    Algebra problem, but there are scenarios where it is better to have the property appraised (and taxed) at 100k vs. 300k…

  65. 66

    What about your utility costs for electricity and natural gas? I’m guessing that 1920 craftsman is pretty cold in the winter. The upper 1/2 story probably heats up quite a bit in the summer.

  66. 67
    The Tim says:

    RE: Charlie Rogers @ 66 – Good question. We don’t actually have gas. Yes, we’re paying more for electricity than we were for our ~1,000 square foot cinderblock rental. I haven’t actually run the numbers but I’d bet that it’s a fairly similar cost per square foot to our old place. If I think of it I’ll look that up and post another comment this weekend.

  67. 68

    RE: The Tim @ 67 – Maybe you should spend some money on attic insulation if that wasn’t done by the prior owner? Also, if you have electric forced air, duct sealing can help.

  68. 69

    Since you have been living there for a year now, you should have or be close to having a full year’s worth of utility bills. If all you have is electricity then that simplifies things. You can simply total the bills to get the total annual costs. (If you want to be really sophisticated in your analysis, you will separate out the monthly service fee, add up the kWh usage and multiply the usage by the current rate–which fluctuates from time to time. I am more familiar with Seattle’s rate changes than those in Snohomish).

    There is also a trick to separate the heating related costs from the non-heating related costs. Find the lowest bill (from a summer month) and multiply that amount by 12 (months). then multiply that by a correction factor of 1.1. The total you get from that calculation is the annual electricity costs for non-heating related usage (lights, appliances, water heating, etc). Then subtract this figure from your total electric use from the year. The result is your heating related electric use.

    To respond to Kary: Attic insulation is typically a great upgrade, but there may be other steps that should be done first. Air sealing holes and gaps around plumbing vents, wiring, chimneys, and other fixtures (where they go through the ceiling) is an important first step before adding more attic insulation. Replacement and/or re-venting of bathroom fans and wiring upgrades are other fixes that are sometimes necessary before adding more attic insulation.

    Assuming Tim has an electric forced air furnace (the assessor’s page incorrectly says he has a gas furnace), duct sealing may only make sense if the ducts are in a space that is vented to the outside. In 1920 craftsman houses usually I am seeing ducts in an unfinished, unvented basement area. In these scenarios, it’s better to spend one’s limited resources insulating and air sealing the basement exterior walls (assuming there are no moisture problems). Additions to these older structures typically have crawl spaces underneath them and in these situations sealing and insulating of those ducts would be important.

  69. 70
    Doug says:

    We bought just 2 months before you, Tim. We’re in the process of refinancing from an FHA to a traditional 30-year loan.

    We’re pushing back the amortization date from 26 years to 30, which is a bummer. However, no more wasted money on mortgage insurance. And I’ll happily pay an interest rate that’s barely above inflation.

    Say what you want about the vagaries of owning a home, having a total monthly payment lower than the cost to rent locked in (aside from property taxes, and owner’s insurance) is really nice.

    As someone who had moved 7 times in 9 years, it’s really nice to have a home of one’s own (ostensibly).

    EDIT: on the subject of utilities, we’re definitely paying less for energy in our well-insulated, gas-heated house than we were in our drafty little baseboard-heated apartment.

    Of course, the nearly-flat bill we get for water and sewer (even though we use FAR less water than the average household) makes up the difference. Why even have a water meter and water conservation program if you’re just going to charge a flat base fee?

  70. 71
    Tim McB says:

    RE: Doug @ 70

    “Of course, the nearly-flat bill we get for water and sewer (even though we use FAR less water than the average household) makes up the difference. Why even have a water meter and water conservation program if you’re just going to charge a flat base fee?”

    I totally agree. I’m annoyed with our water/wastewater bill too. It doesn’t budge even when we attempt to conserve. Very annoying.

  71. 72
    BK says:

    RE: The Tim @ 7
    Tim, You are such a bright guy – don’t let the emotion of owning a home free and clear over whelm you. There will never be a time where they are giving away Money at such low rates…..at some point in the distant future you may be kicking yourself because of all that cash you gave away…..You may even be able to refinance and low the rate!
    Keep in mind I’m currently renting…. there are lots of expenses that I can’t add to our Schedule A – because we don’t have the Mortgage interest deduction….
    Buy the one of the Gold etfs with your extra cash…….invest in an energy related mutual fund every month…….just don’t pay off your mortgage for the hell of it…..

  72. 73

    RE: BK @ 72 – So you want to spend $7,000 a year on interest so that you can get 20% back on part of the other items that you can deduct? Those other items would have to total $35,000 just to break even!

  73. 74
    The Tim says:

    RE: Kary L. Krismer @ 73 – And buy gold. Because now is the time to buy gold. At an all-time high.

  74. 75

    By The Tim @ 74:

    RE: Kary L. Krismer @ 73 – And buy gold. Because now is the time to buy gold. At an all-time high.

    Now you’re thinking like a California politician in the last decade.

    Cue Pegasus to claim that if people buy gold at a high price, that it’s someone else’s fault if they lose money.

  75. 76
    xizor says:

    Tim:

    My son is doing a no-cost refinancing of his 30 year mortgage in Fremont for 3.75% — the mortgage company will pay all the closing costs and even pay $1,580 of his prepaids. In other words, they are paying him to refinance. So why stick with a 4.75% rate? And why prepay a little bit each month? If you want to pay off your loan in 15 years get a 15 year rate of 3% or whatever, no cost. However, I still say you should back up the truck and load up on mortgage debt for this price and wait for the housing and interest rate inflation that is down the road. It will rip the face off the folks like the bond holders who are buying up all this mortgage debt and render your payments hilarously low in just a few years. You are a smart guy –so why haven’t you figured this out?

  76. 77

    […] to a refinance we did last June at the prompting of a number of readers in the comments on the the year one recap post. We refinanced from a 30-year fixed at 4.75% to a 15-year fixed at 3.125%. Our monthly PITI payment […]

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