On afterthoughts to refinancing...

Last month, we refinanced our current mortgage. It was a 7-year ARM at 4.625%, which is still a good deal. But as it's expiring mid next year, we want to lock in the current low rate. So, we refinanced it, paid some points, and we're now at 4.25%, fixed 30 years. I reckon, we can easily make the points back by staying for 3 years or so in our current place, which we intend to do anyways. We also take our the uncertainty of variable rate after the 7-year term of the previous ARM, since USD is bound to go down further at some point due to the huge deficit, and interest rate has to go up further down the line. The new mortgage payment is down about 10% (including escrows for property taxes), which is much cheaper than paying rent. Our area is a stable neighborhood, which has actually seen property prices holding up and on their way up again, due to the good public schools. I'm truly thankful that things have worked out fine.

This is actually not our first mortgage. We've had our first mortgage some 12 years ago, with 8.5% interest, fixed for 30 years. About two years later, we refinanced it to fix at 6.25%, fixed for 30 years. And then, maybe another 2 years later, we paid it off completely, so we don't have to have the debt hanging over our heads. That's about the time when, after the stock market bubble burst in 2000 and the next bubble started building up in real estate. Over the next few years, we saw our neighborhood prices going up by 20-30% per year which, to any sane mind, was pretty crazy by American standards. As my husband doesn't normally pay much attention to markets, he initially would not believe me that our property's value has probably doubled, since we bought it some 6 years before. During bubble times, no one really cares about to do sanity checks. All everyone wanted to do was to buy and flip, or buy and wait to see prices to go up another 50% or more before they sell and trade up. As we intend to stay there long term, it doesn't really matter much to us, though I must admit, it's very amusing to see. The psychology of the crowd can be powerful though. When you're sitting on paper gain of 200%, you feel rich. That's what's been fueling the American economy.

The underwriter of our initial mortgage was Chase. I like them alot, since the processing is super-efficient and we never had any trouble with it. When we refinanced, our loan was eventually sold, and we ended up with Chase again. I couldn't be more happier. Interestingly, when we bought our current place (second mortgage), our loan got bought out by Chase once again. I certainly won't complain, since I've heard horror stories about lesser underwriters whose processing was shoddy, with mortgage payments getting lost and all. I would have loved to stay with Chase forever. Chase has always kept us on their books, which is what I like.

After we refinanced last month, we were told that the underwriter (some no-name mortgage company) routinely sells their loans within 60 days of closing. Hence, they never bother to send us permanent mortgage payment coupons. As it happens, it looks like we're going to be with Bank Of America, starting next month (yep, within 60 days of closing, alright). Apparently, even though there's so much talk in the news that banks are reluctant to lend, they are still buying up mortgage loans from secondary market like crazy. I hope BoA would keep us on their books too, so we don't have to keep switching underwriters, every year or so.

From a business perspective, an solid investment with interest paying 4.25% for 30 years is not bad a deal, given that the treasury is currently paying 1% or less. If I have had the capital, I wouldn't mind getting into this business at all. :) But I would probably stick with the community bank type of business model, so that I would get to know my customers well, and keep them on my books. Granted that it's not an expansionist view (to get big as fast as possible and to buy/sell on secondary market etc), I like the idea of solid growth with solid customers. Perhaps that's just me. :)