Monday, July 18, 2011

Why I'm saying 'yes' to Umpqua Bank's 7-year (adjustable) mortgage deal

Sixty and single retirees on limited and fixed incomes can give themselves a raise by lowing their monthly household living expenses. That's why I've been keen on refinancing my home mortgage loan.
It is the biggest single fixed monthly cost that I have. Readers of this blog know that earlier this year I looked at refinancing through my current mortgage holder, Chase Bank. As I explained at sixtyandsingle, that deal just wasn't good enough to fork over several thousand in closing costs and $450 in an upfront fee.
Now I've got a new deal in the works with Umpqua Bank, a regional bank with offices in Oregon, Washington and Nevada. Right now I'm saying yes to this deal. Here's why:
Umpqua is offering me a seven-year adjustable mortgage on a 30-year loan at 3.625 percent. That's way lower than the 6.1 percent I'm paying to Chase and means I benefit from Umpqua's 3.6 rate for seven years before it changes or "adjusts."
That gives me a monthly mortgage payment that's more than $274 lower than my current payment to Chase and saves me $3,348 a year. Not bad.
This is money I could easily save for that big trip to Turkey.
So what's to watch out for?
Let's say I don't pay off this loan and in seven years interest rates are sky high when this loan can adjust upward. Will I get burned? According to the deal, there's a 2 percent-a-year cap and a 5 percent life-time cap on the loan. That means that even if I keep this loan beyond the seven years, the highest it can go is 8.6 percent, which means I'd be making a monthly payment only $100 more than what I'm paying now at 6.1 percent.
The seven-year deal seems like a good one for the fact that one of two things is likely to happen: My 96-year-old mother will die and I pay off the mortgage. Or I sell this house, pay off the loan and move to town to a smaller home with no mortgage. Umpqua's closing costs of $2,373 (Chase fees were substantially higher) get folded into the new loan. In comparing this deal to the Chase deal, I think I'm coming out far better with something that significantly lowers my cost of living in the short term and protects me from truly high interests down the road.
There's an irony to this.
I'm working with the same smart young woman who had worked at the now defunct Washington Mutual Savings Bank when I had to refinance my mortgage four years ago because of my (unwanted) divorce. She jumped ship two years ago to Umpqua. Smart move.
Last week we both lamented the necessity of the last refi that because had my ex-husband and I stayed married we would now have only five years left on a 15-year mortgage loan. In five years we would have paid the debt and owned the property free and clear. Because I kept the house, his name had to come off that loan, which meant a refi for me to the 30-year at 6.1 percent.
I'm just glad I have this 3.6 percent option with Umpqua. If feels right.
If you are interested in lowering your mortgage costs through a refi, consider these 10 Tips from bankrate.com:
1.Have the right credit score
2.Protect and preserve your credit
3.Shop around
4.Know your borrowing limit
5.Don't reset the calendar
6.Consider a no-closing-cost refi
7.Small down payment? See the feds
8.Small loan? Act early
9.Make an extra payment
10.See a counselor

Editor's note: I serve on a regional advisoy board to Umpqua Bank. My association has nothing to do with my mortgage loan deal and I get no break because of the relationship.

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