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Bye Bye American Refinance Pie

by J. Money on Monday, March 25, 2013

bad idea

Remember that awesome refinancing idea I had back in January? (Well, awesome to me but dumb to a portion of you? ;)) Whelp, I’ve finally decided to shoot it down myself for the time being. Oddly enough it was a lot harder to fine someone to loan us $65,000 than I initially thought ;) Haha… But I still very much love the idea!

(For those who missed it – my plan was to take out a loan from a friend/biz person and pay THEM the 5% interest on it instead of my mortgage company, so that way we can refinance and lock in a lower rate going forward (which we can’t do at the moment cuz we’re too underwater). Some people thought it was playing with fire because it’s basically shuffling money from one place to another, but I thought – and still think – it’s brilliant if it can be pulled off. I’d MUCH rather pay interest to a friend or biz partner than I would the bank! It’s a total win-win in my eyes.)

Life changes, though, and the following variables have crept up in the meanwhile:

  1. We just offloaded over $25,000 into my SEP Ira – so the idea of giving up even more to accomplish a mission isn’t as exciting anymore. Even though technically – yes – we would still be okay with another $30,000 missing. Which is now the remaining amount of our 2nd mortgage – we paid off $4,000 since first blogging about this! I freakin’ love using time to our advantage.
  2. We plan on moving over the Summer, and probably not best to do anything drastic until we’re nice and settled in. Still considering North Carolina btw, though we’re now considering more closer locales as well so baby and grandparents can still hang out :)
  3. I wasn’t convinced 100% that we would save *enough* in the end to make this refi plan worth it. We’d have to get our interest rate at least lowered down to the 3%-3.5% range to save the desired amount ($300-$400/mo) and from talking with all kinds of bankers and helpers I had advising me, the more conservative estimate was hovering around the 4% mark. Still MUCH better than the 5.5% we have now, but not a total game changer… Although it is recurring which is nice :(
  4. And again, no one took me up on the loan offer. I’m *pretty* sure I could get my parents to sign off on it, but really who wants to do that? I’d only feel comfortable if it were more of an emergency than a nicety, as much as a nice loan could help us!

So lots of changes, but ultimately I’m okay with it as it stands. Which is paused :) Now I’m just telling myself it’ll all be paid off within 8 years anyways, so in the grand scheme of things it’s not that much of a loss! Even IF this plan would lower the pay off down to 6 or 7 years instead of 8, boooooooo……

Definitely a fun concept to mull over though… Anytime you can think outside of the box to better your financial situation, I highly encourage it. Even if people say it can’t be done or that it *shouldn’t* be done. Most brilliant ideas are tossed aside by the masses in the beginning anyways :) And the more you do it, the more you’ll come across something that does stick eventually! So it certainly makes life interesting. And you learn a butt ton in the process as well – similar to starting a company and it failing. You get just as much knowledge out of those than you do successful ones!

Anyone contemplating some of their own good ideas right now? Or any you want to throw our way for some advice and commentary? Drop ‘em below and we’ll give you our honest opinions! It’ll help everyone out :)

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[Photo by: Tsahi Levent-Levi  // tweaked by  J$]


{ 48 comments… read them below or add one }

1 My Financial Independence Journey March 25, 2013 at 5:49 am

Sorry your refi plans fell through. Saving $300-$400/month (even $200 a month) would be very nice.

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2 Lance @ Money Life and More March 25, 2013 at 7:16 am

Bummer you couldn’t get it to work out. Big news I see though is you’re moving THIS SUMMER! Congrats on making the decision to move, but good luck picking a place!

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3 J. Money March 25, 2013 at 10:01 am

thanks! it’s very time consuming and exciting at the same time – we’re just ready to finally DO IT.

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4 John S @ Frugal Rules March 25, 2013 at 8:25 am

That sucks it did not work out. I would love to refi our hose, but I think that ship has sailed for a variety of reasons. Good luck with the move and finding a good place.

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5 William @ Bite the Bullet March 25, 2013 at 9:05 am

Drove you Chevy to the levy, but the levy was dry, huh :)

I like your approach of *considering* anything, no matter how out of the box, but letting it percolate so only the real winners get acted on. Sometimes a crazy idea can be be a winner…

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6 J. Money March 25, 2013 at 10:03 am

Same thing with business ideas, eh? I’m getting better about the *thinking* part over the *doing* part on a lot of them so I don’t spread myself too thin… it’s not as exciting, but it saves tons of time/money/stress down the road that’s for sure :)

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7 William @ Bite the Bullet March 25, 2013 at 11:32 am

On the other hand, you can have as much fun building castles in the air as doing the actual thing. In fact, the castles in the air are often more fun, because you get to write the whole script. The reality always contains bad things you couldn’t have foreseen.

And when you get tired of one castle, there’s no cost to abandon it and move on to the next one. :)

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8 J. Money March 25, 2013 at 12:26 pm

haha indeed. and sometimes you just have to say F it and go and build it in real life! never know where it may lead.

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9 Samantha March 25, 2013 at 9:22 am

Will you be keeping your current home and renting it out? Very exciting news!

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10 J. Money March 25, 2013 at 10:04 am

Yup, we’ll be keeping it and renting it out through a management firm (so we don’t have to do all the work/worrying 24/7) until we can sell it after the market picks up more. Or we’re no longer tons underwater :(

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11 Glen @ Monster Piggy Bank March 25, 2013 at 9:30 am

I thought about doing something similar, but most people aren’t interested in thinking outside of the box and when you tell them of your plan they look at you like a crazy person.

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12 J. Money March 25, 2013 at 10:03 am

that’s what I have you all for :)

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13 Jane Savers @ The Money Puzzle March 25, 2013 at 9:32 am

I have a HELOC instead of a mortgage but I am thinking about moving to a mortgage to lock in at the lower interest rate but the HELOC lets me pay less if I can’t make a set payment the way a traditional mortgage does.

Have you ever considered holding the mortgage or a secured personal loan? There is a group of local businessmen who pooled some money and lend to other local businesses and they have branched out to small mortgages now.

My uncle made some good money holding mortgages for family members. I am not sure I would hold loans for family members because if it started to fall apart it would be a giant mess. Loaning to aquaintences could be an interesting money maker and you could end up with their boat or snowmobile if they default on payments. A form of peer to peer lending except with with face to face contact.

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14 J. Money March 25, 2013 at 10:07 am

that’s kinda cool :) I’ve never considered it, or even heard of it really that much, but I admit it’s a creative way to have an investment. I probably wouldn’t do it personally unless we’re talking money under $10,000 (that would be small house, eh? haha….) but then again I’m much more conservative when investing my own money. Even though part of my mortgage refinance plan HERE sounds similar to your idea just called something different. And also means someone else “holding my loan” than me ;) I just don’t trust many people with that kind of money really.

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15 Jane Savers @ The Money Puzzle March 25, 2013 at 10:33 am

I would consider holding a car loan with the car as security but there would be a lot of paperwork involved. I wonder if I would be able to bring down the hammer if payments were late. That would take a lot more guts than an impersonal online peer to peer site.

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16 J. Money March 25, 2013 at 12:27 pm

yeah, I’d suck at that. would def. need it all to run through a company to handle it all for me. which is what we’ll do when we rent out our house too – pay a management company to run things/get renters/be strict/etc/etc. Well worth the money for us.

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17 Brian March 25, 2013 at 9:41 am

Something to consider… it is awfully nice to live close to grandparents when you have a little one. Pretty much means there is always someone around to watch the little guy if you want to go on a date or do something that isn’t baby friendly (like a Jimmy Buffett concert). I’m just sayin…

Only crazy thing I have done recently is loan my sister and her husband (well their LLC anyways) $40K to buy a car wash. It may sound crazy, but her husband knows this business inside and out from having managed one and later in life selling the chemicals to car washes. I guess it is his calling.

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18 J. Money March 25, 2013 at 10:09 am

cool!!!! and very nice of you guys, wow. Is it a loan or an investment? I’d imagine I’d rather own a part of it than loan out the money, but either way that sounds fascinating to me. I just saw on Facebook yesterday that someone bought a laundromat too! Old school businesses – such a nice change from all this online stuff I’m used to :)

let us know how the loan and business goes down the line? maybe we can do some sort of post on it about pros/cons – that would be dope.

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19 Brian March 25, 2013 at 11:15 am

It’s a loan. I don’t really want to be a part owner of a car wash in Maryland when I live in Indiana. It would just be too much of a headache for me. I’ll be sure to let you know how it works out.

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20 J. Money March 25, 2013 at 12:29 pm

I was thinking more of a passive involvement ($40k for 20% of all profit, for ex) but yeah – def. a whole other situation than a loan. Still cool of you though :)

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21 Devan March 25, 2013 at 10:19 am

Did you try the Harp 2.0 refinance – the LTV is unlimited

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22 J. Money March 25, 2013 at 12:29 pm

yup – our mortgage doesn’t qualify :(

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23 Tony@WeOnlyDoThisOnce March 25, 2013 at 10:48 am

Good luck with your potential move! Sounds like your reasoning is right on track.

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24 Grayson @ Debt RoundUp March 25, 2013 at 11:25 am

Anytime you want to hit up NC, I live in Raleigh and can show you some sweet spots. I know it is far, but it is a great place to live and work. Summer’s are a little hot though.

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25 J. Money March 25, 2013 at 12:29 pm

Very cool – thx! I might take you up on that!

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26 Stephanie March 25, 2013 at 11:27 am

Ooh, good luck with the home search! Do you know what the going rate for the rent on your townhouse would be compared to your mortgage payment? I know that in my neighborhood, rent on a house similar to mine would be about $1400, versus our ~$1200 mortgage payment (including tax and insurance). If the situation is similar where you live, you might stand to make a small profit!

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27 J. Money March 25, 2013 at 12:31 pm

I think we’d pretty much break even, or even “lose” $50 or so. But honestly all that is fine with me cuz we just need to get out and start living somewhere new :) And the goal is to go somewhere which is cheaper anyways, so hopefully we’ll save some money on that front. Though we’ll be paying a property manager to do everything for us, so who knows… Still excited though!!

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28 Retire By 40 March 25, 2013 at 11:33 am

That’s interesting, but it seems like a logistical nightmare. I guess if things go right, then there is no problem. But what happens when there is a late payment here and there or other problems? I don’t know. Good luck with the relocation.

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29 J. Money March 25, 2013 at 12:32 pm

we’re hiring a property management first to do it all for us – who I’m guessing will be much better at it than us (re: collecting payments/being strict/etc), and in theory it should all work out swimmingly :) my parents use one for one of their rentals and it’s worked out well. We’ll see.

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30 Kate Horrell March 25, 2013 at 11:37 am

Sorry that you couldn’t make that work. I’d love to do a deal with our few relatives who have that sort of cash lying around, but I’m not comfortable approaching them. Sad, but true… It would truly be a win-win situation.

I agree that it is nice having grandparents nearby when the Baby is little, but unfortunately that can’t be the only consideration.

Still, 8 years is pretty rockin!

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31 J. Money March 25, 2013 at 12:33 pm

It’s gonna be touch to pull off, but I know we can do it! We’ve already got through over a year on our mortgage pay off plan, so fingers crossed we can keep it all up over time :)

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32 Edward Antrobus March 25, 2013 at 1:33 pm

When we were thinking about moving the mobile home, we dropped the plan mostly because we had no-one who would loan us $20k to pay off our loan to be ALLOWED to move it.

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33 J. Money March 27, 2013 at 10:00 am

man… $20k to own a house? that’s incredible. I really like mobile homes too – a lot more spacious in them than people realize!

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34 Nick @ ayoungpro.com March 25, 2013 at 1:37 pm

I thought your refi plan was interesting and I was hoping that it would work out for you. You are right about one thing though, no one wants to borrow money from their parents! ;)

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35 J. Money March 27, 2013 at 10:01 am

I’ll be back to scheming again once things settle down a bit :) It’s not gonna faze me for long!

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36 Jacob @ iHeartBudgets March 25, 2013 at 3:26 pm

I, for one, am glad this didn’t work out :) Owing money to friends/family is never fun, no matter how good it looks on paper. I’m also underwater, but was lucky enough to have an FHA mortgage, so our ReFi was painless, and was able to lock in 3.25%. Hope something else comes along so you can ReFi before rates go up. I’d say keep in contact with a good local broker to assist you.

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37 J. Money March 27, 2013 at 10:01 am

yeah… or I need to find a good business man who knows a deal when he sees one ;)

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38 Elisa J March 25, 2013 at 9:54 pm

Did you see this on CBS Sunday Morning yesterday? http://www.cbsnews.com/8301-3445_162-57575946/a-credit-union-thats-all-in-the-family/
Kind of interesting!

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39 J. Money March 27, 2013 at 10:02 am

So cool!!! Listening to it now – thanks!

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40 jim March 25, 2013 at 11:02 pm

Careful, Bud – I would seriously hesitate about moving that little angel too far away from the grandparents – and I’m speaking, as an old guy, from the other side of the fence. I can’t begin to tell you how many times we’ve taken care of our 2 very young grand kids – both so dd and sil could get away and (more importantly) when there were health problems. You can’t BUY that kind of support/love. You just can’t.

Thinking out of the box.

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41 J. Money March 27, 2013 at 10:03 am

Well, right now we *are* far from the grandparents so any move within a 100 mile radius would be a smarter change on that front ;)

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42 Shafi March 26, 2013 at 6:49 pm

I always wanted to move to a warmer locale but I am stuck in cold weather for 6 months of the year. I think you are making a good decision to move to NC.

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43 Andi B. March 29, 2013 at 1:11 pm

Warmer is definitely better. Considering your self-employment, have you considered moving to a state that has no income tax or sales tax? Or becoming an expatriate? There’s a lot of warm climates with a foreign income exclusion…. :)

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44 J. Money March 29, 2013 at 8:16 pm

Haha I have! But probably not best to take my baby even farther away from family :) You can bet your sweet ass I’ll be traveling a lot more soon though, and will live overseas once things settle down more! Would love to do that again.

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45 @pfinMario March 30, 2013 at 9:07 am

Also you wouldn’t be able to tax-deduct the interest on a personal loan

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46 J. Money April 1, 2013 at 8:25 pm

That’s true, actually – hadn’t thought of that!

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47 Lisa May 23, 2013 at 4:36 pm

Wish I spoke “Finance”, but its all greek to me! Am 14,000 in debt with 0% promotions for the duratiion of the 14,000 paying around 800 per mo. Have applied to everyone i can think of for a loan of 14,000 for 48 mos. which would bring monthly payments to about 350 instead of 800. Problem is myhigh DTI. Even with a high credit score, no one will give me a loan! You sound very financially-saavy…..any ideas for me??? Thanx very much

Lisa

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48 J. Money May 23, 2013 at 5:30 pm

0% is GREAT!! The fact that you have that is killer :) Why do you want to extend your loan payments to 48 mos? at this rate you’ll have the balance paid off in no time! I don’t know what else you can do if you’ve already applied other places really, outside of just picking up some side jobs to get it all paid off even quicker. Good luck to you though!

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