Refinancing 2020

In these uncertain times, the US Federal Reserve has cut interest rates to historical lows. The connection between the federal funds rate and mortgage rates is only indirect but it has resulted in historically low mortgage rates.

I’ve been able to save a few hundred dollars each month (!) by refinancing. This equates to about 5% of my budget and so, although the process was slightly tortuous because so many people are refinancing and because I’m now retired, it was worth the investment of time.

It was prudent for me to get the original mortgage before I retired because mortgage issuers commonly assess their risk partly by determining the mortgagor’s (borrower’s) income. This is not the only measure, of course, other assets are considered too but, it seems to be the norm. I looked around online (e.g. Quicken Loads and their affiliate Rocket Loans) but these tools bias towards asking about salary (income) and don’t appear to support alternatives.

A neighbor referred me to their independent mortgage lender who quoted promptly and competitively but I’ve been feeling risk averse and was anxious about my mortgage being held by an organization whose finances were unfamiliar to me. Ultimately, my existing mortgage lender (one of the “Big Four” banks), refinanced the loan.

The folks at the bank told me to expect a 45-60 day process and it appears to have taken about 2 months. I think this is primarily due to the significant increase in volume of applications rather than my circumstances.

The process is almost entirely online which is good and the various tasks I had to complete for the process were outlined in the tool and I received email notifications for them. I was surprised at the quantity of statements that I was required to provide in order to attest my net worth. Originally I was asked to provide most recent statements for all my accounts. Subsequently, I had to additional provide the month before and statements from 12-months ago as well. I understand the need for the bank’s underwriters to ensure I was providing an accurate reflection of my finances but I’d not had to do this for the original mortgage.

During the process, I pointed out to the bank’s representative that the bank already held my existing mortgage and that the refinance (although financially better for me) only increased the bank’s risk profile by extending the loan some 2 years. He acknowledged that the bank holds all the cards; whatever hoops it provided, I would need to jump through. So I did :-)

Spreadsheet

The ony notable revision to the spreadsheet is the 5% reduction in cell Budget!G3 from 30% to 25%. To retain the conveniently round value of $1000 for my annual budget without recalculating percentages of 1000/950, I’ve moved the 5% interest payment savings to the vacation budget (which was previously $0). This feels like a worthy way to account for the savings although it’s probable I’ll just reduce my monthly budget this amount.

https://docs.google.com/spreadsheets/d/1yt5EZOBrCd7BRdO49QGSP88QM1rMAxwnSHdnaQZtZcY/