How to Refinance An Adjustable Rate Mortgage

Oh, man! Why did I buy THAT?

2008-11-03T16:37:00.005-05:00

Oh, the pain of investing!

Life’s a beach

What would you say your investment pain threshold is? High? Or are you someone that needs the security of absolute returns like CD’s?

Most of the time we don’t associate investing with pain. We love to dwell on double digit returns and how great it will be when we get to retire and sit in a corner counting our gold like so many Scrooge McDucks. We are awash in visions of buying boats and golfing, of european vacations and cabins in the mountains. Everywhere people are always smiling and laughing with their friends while sipping wine at different vineyards and life is good. All thanks to the wonderful folks at Madison ave.

But the reality is often much more harsh. During my years in the investment business rare was the call from someone sitting on a beach sipping too sweet a drink and being waiting on hand and foot. More often than not when I picked up the receiver the investor calling in was generally suffering from some type of distress. Sometimes, and thankfully not often, they would already be in some kind of mental meltdown.

Reality isn’t a game show

Between sniffles and nose blowing they would want to start to begin trying to piece together the ugliness that their 401(k) or ira statement was highlighting. Questions began to be peppered at me along the lines of “How did this happen?” or “What am I going to do?” or “I don’t understand...!” or even worse “What did you do with my money?!”

Begging them to take a deep breath and finally getting them to settle down I would begin the process of dissecting their investments and would begin probing them with a discussion that went something like this:

Me: Ms. Jones, I see you’ve invested in XYZ and that it’s dropped about 30%...

Ms. Jones: THAT’S what I’m trying to tell you!! It’s dropped!! And now I can’t retire!!

Me: Tell me why you chose XYZ.

Ms. Jones: What am I going to do now? *sob* I was going to use that money to buy my retirement home and...

Me: I understand, but, please tell me WHY you purchased it. It’s in a pretty volatile sector.

Ms. Jones: I KNOW IT’S VOLATILE!!! Look what’s happened! *sob* I’ll have to work 25 more years to recover! *sob*

Me: Maybe, maybe not. Why did you choose XYZ?

Ms. Jones: Because my (brother, uncle, friend at work, mother, boyfriend, etc.) said that this was going to take off and make people a lot of money and now it hasn’t and...

Ugh! Gives me the shivers.

Pain can be good

That happened more times than I care to share with you. But, in truth, maybe XYZ might be a good investment. Just not for Ms. Jones. You see, Ms. Jones found out that she really didn’t have the pain tolerance for an investment that could take wild swings. She only saw an upside and didn’t factor in a downside. Sure, it MIGHT give great returns, but, it’s possible it MIGHT tank as well. It’s amazing to see how many people have no idea about the background of an investment they’ve made and many times one they’ve made based purely on word of mouth. And to make matters worse some folks put ALL of their eggs into the one basket instead of just dropping in a couple of the eggs. Greed will kill ya.

The market only averages about an 8-10% return. Take a look at it’s history. But, that’s not a bad thing. Just because it’s not producing double digit returns every year doesn’t mean it’s not worth investing in. Ask Warren Buffett. The guy buys companies like Dairy Queen. Not exactly a company making the headlines of the Wall Street Journal everyday. But, he believes its stable and steady. Now look at your investments. How do they compare?

So before you make your next investment or before you call up your broker to bite his head off take a minute or so and ask yourself why you purchased the stock or bond or whatever you’ve purchased and consider whether or not you were really prepared for the ride it produced. Your reaction to the pain is a very good indicator.

How to Refinance Your Adjustable Rate Mortgage

2008-10-09T17:47:00.029-04:00

Welcome to How to Refinance Your Adjustable Rate Mortgage. This site provides resources and tips for folks with adjustable rate mortgages that are looking to refinance. If you have any find you have any further questions about how we refinanced ours please feel free to email us at gilmantonnh@gmail.com

Read on if your dare:

"SAN FRANCISCO, California (AP) -- Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion rescue plan to restore order to the financial industry." CNN 10/05/08 or

(Cringing about your adjustable rate yet?)

"AIG hits up Fed for more money

Three weeks after an $85 billion bailout, AIG is turning to the New York Fed for additional funding." CNN 10/08/2008

Oh, oh, and don't forget these great headlines:

MORE NEWS

• GM plunges 31% as outlook dims

• National City mum on sale talk

• Answers voters deserve

• Jobless claims fall from 7-year high

• For states, it's a 'worst-case scenario'

• Lenders still on edge

• Dow tumbles 7%

• Iceland suspends trading for 2 days

• OPEC to hold emergency meeting

• U.S. mulls buying bank shares

• Gas drops 4 cents a gallon

• Oil hovers around $89 on recession fears

• Euro banks add more liquidity

Doesn't make the idea of refinancing your mortgage exactly enticing, does it?

You just have to love the boys in 'ol DC. They sure know how to fix a financial mess. Inspiring I know.

Our "Calculated" Rate Search

An adjustable rate mortgage was anywhere near our thoughts when, about two and a half years ago, we found a house on a lake we thought we'd like to buy since for the past 20+ years we'd been walking into the bathroom once a month to flush several hundred dollars down the commode in rent. THAT was a fixed rate and that needed some adjusting! We start looking around and doing the "couples" thing by getting going online to a mortgage site. We used a mortgage calculator and some of the online sites to see what we could be pre-approved for and then submitted ourselves to the task of house hunting. Funny, "adjustable rate" hadn't weaved it's way into any conversations we'd been having.

I'll write later about the whole "roaming the countryside for eternity looking at properties" story for another day since I hate to see anyone cry.

Since we had gotten pre-approved we suddenly became the proud receivers of offers from all types of financial institutions that wanted to help us finance our mortgage. Washington Mutual eventually won our hearts and ultimately our ARM. We didn't know a whole lot about ARM's except that they could "potentially" cause problems. They handled everything for us so that all we had to do was show up at the closing, sign a few papers, eat Godiva chocolates and dream dreams.

The signing process went smoothly. Unfortunately, being the typical naive and ignorant consumers we were, we didn't pay too much attention during the signing. Any mention of the need to refinance was couched in future talk. And that was all very "matter of fact"/"we'll review it later if we need to" kind of speak. Nobody seemed too concerned with anything "adjustable". Maybe it was the fatigue from the hours of all the signatures we had to sign, but, all we came away from it was that we were in an ARM that would adjust in two years at which time, we were assured, everything would be re-visited and then changes could be made.

Rate Reality Ravages

Well, after about a year we figured we'd re-read the paperwork and use a mortgage calculator to get ready for the upcoming meeting and that's when realized we had a 40 yr. (yup, it says 40), (8.5% first and 10.5 second) adjustable rate mortgage that would balloon up in 12 more months to an amount close to what the Congress is debating for the AIG bailout right now and an interest rate only given by guys specializing in broken legs with a penalty if we tried to dislodge ourselves from it "prematurely". Yipes!

After the panic and vomiting blood stopped, we thought "Maybe we should do a little MORE research and see if there's anything we can do about this?" To my wifes credit, she found a company called TopDot Mortgages which deals with scenarios such as ours that needed serious refinancing and she began a relationship with them that eventually ended up with us landing a real live fixed mortgage.

TopDots customer service was exemplary. Constantly checking in with us, they hand held us all the way. They phoned us often for updates and to see where we were in our part of the process. They even went so far as to have a copy of our paperwork sent by FedEx to Florida where I had gone on some business so that I could sign it after my wife had done so in New Hampshire. Top rate!

Our treatment from them was unexpected. The payment (which is the same as we had with the ARM) now includes the principal, interest AND taxes. And, is shorter in time. Now, they're working with us on an accelerated payment schedule so we can retire the mortgage in about 17yrs. Sure, there were some more costs involved. And a few headaches since we had to gather MORE paperwork. But, we didn't lose the house, get stuck with outrageous payments and we sleep better.

How's Your ARM Feel?

Soooo, just how comfortable do you feel about YOUR adjustable mortgage? Take a look at some recent headlines and links I've provided and then try to sleep good tonight:

U.S. bank failures almost certain to increase in next year (http://www.cnn.com/2008/US/10/05/shaky.banks.ap/index.html)

Wondering Which Bank is Next (http://money.cnn.com/2008/09/29/news/companies/bank_failures/index.htm)

http://www.fdic.gov/bank/individual/failed/banklist.html

Wells Fargo to acquire Wachovia for $15.1B Government Seizes WaMu and Sells Some Assets

Bank of America Buys Merrill

U.S.News & World Report%u2028What the Bailout Means for Mortgage Rates

As Big Banks Converge, Depositors Find Deals at Smaller Institutions

How Lehman Brothers Took Out Washington Mutual

The downfall of the $307 billion-asset WaMu represents the largest banking failure in U.S. history, dwarfing the 1984 failure of the $40 billion-asset Continental Illinois, which had previously held the distinction.

Disclaimer: I am NOT a financial advisor and none of the information contained in this article is to be viewed as advise. Also, we don't work for TopDot and have no relationship with them except that they hold our mortgage and we just happen to like them.

So, that's how to refinance your adjustable rate mortgage.