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Our Story: Both my wife and I are 27 years old and have gone through financial hell and back. Now we are on track to financial freedom, however we are not financial advisors or professionals, just everyday people. Share our journey from a negative networth and email us if you have questions or comments! :)



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Thursday, December 01, 2005

The First Time Refinance

Its time to refinance the mortgage. Now the first mortgage that we have through Homecomings Financial did not work out because the 3/1 ARM option they picked was garbage and will expire soon to a hideous 9.99% interest rate (Are they crazy??? My Credit Cards get better rates!). I always find that I choose the wrong financial option the first time around and then the second time I realize how dumb my first choice was. The second option suits me much better in our financial position. We refinanced through ING Direct and started the ball rolling yesterday.

As excited as I was refinancing, I can't wait til the day of closing. Here were the couple of snags I ran into. First, they wanted to know if my spouse and I wanted to be on the same title. Since the original title is solely in my name and it would cost an extra $200+ to get this done, I decided not to add the spouse onto the account. The ONLY reason why you would make this a joint account FINANCIALLY speaking, is if you wanted the debt:income ratio to be much lower since 2 incomes are better than one. I decided NOT to have the spouse on the account since we technically will own the house in 3 years or less anyway; the title AT THAT TIME after it is free and clear, can be changed into whatever I wish.

The closing costs were minimal and shouldnt be more than $1000. The interest rate that I closed last night has since dropped a couple hundredths of a percentage point making our monthly rate drop $10/month!! How incredible is that? Here is our setup:

$75,000 Mortgage Loan on a $125,000 house.
Interest rate locked in at 5.625% for 5 years.
Monthly payment calculated at $432.00/monthly
Additionaly monthly payment to principal: $1668.00
(total payment will be $2100/month)
Using this, my loan will be fully paid off in 3 years.


I accepted this and have been submitting paperwork to ING mortgage as quickly as possible. However.... this NEW loan has brought up some interesting questions. Since I will ultimately be draining my savings account now at $13,500.00 (putting 7,500 towards paying off my loan of $82,000 on my first loan) , how will I use the remaining $6,000.00?? My first idea is to build an emergency fund of $6,000, however I don't want to use the full amount. I believe that 6 months worth is more than enough for us. I will start the emergency fund with $2,000. The remaining balance we will use towards renovations on the home.

NOW the kicker.... since my loan is for approximately 3 years ending sometime in 2008, when my spouse is 27 and I'm 28, when will we have children? And on the side of education, when will I have time to finish my bachlor's degree? I have been running numbers all day and have come to the conclusion that I will run my current job into the ground, while attending night classes to finish school. Then during my senior year in 2008, I will have graduated and moved onto my dream job. Somewhere in there, I need to balance school, a very very unstable job, my spouse, and possibly unexpected children (which if do happen, we are more than prepared). These are a few insights as to what comes with a mortgage like this. I can't wait for the day when we don't have to worry about a mortgage over our head or have any debt!

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