As I detailed in Part 1 of my 10 Savings tips, recurring expenses are a great place to save money. For homeowners, what could be a bigger expense than your mortgage? Interest rates are at an all-time low right now, so…
Tip #1 is to refinance your mortgage
First, check rates by calling up or emailing the broker on your current mortgage and see what they can offer you. Next, check rates online and with another broker, especially through Costco. I highly recommend NBKC, the online bank we used for our mortgage. NBKC’s rate was better than the other 2 or 3 local + national banks I checked, and we got a great deal on closing costs (like, $1,200 off or something) just by getting a $120/year Costo Executive membership. (I just upgraded my current regular membership for $60 more.) So, if you go with NBKC make sure to ask about the Costco discount.
Our NBKC broker Jeff, who I also recommend (I get nothing for this, BTW), reached out to us with an offer to refinance to cut our interest rate from 3.9% down to 3.4%.
Since we had just bought the place a year ago, the bank seemed to give us a good deal on the closing costs, which were only $600 net of a $1,200 ‘lender credit’ that they gave us. In exchange for that $600, the 0.5% rate cut lowered our monthly payments by about $100 per month.
Consider the change in your loan payment time period
We went with a 30-year fixed-rate mortgage for the refinance, so our loan payment period extended as a result from the 29 years we had left on the original mortgage to 30 years on the new one. Personally, I’m happy to extend the timeframe out into infinity because at 3.4%, even with expected 10-year inflation at an extreme low 1.2% as of April 2020, it’s really cheap money at a real interest rate of 2.2% ( = 3.4 minus 1.2.) Plus, if inflation exceeds expectations, it’s that much better for us. I’d much rather invest those mortgage proceeds in stocks over the ~10 – 30 year time period that we intend keep the house and mortgage. (The mortgage interest tax deduction really isn’t worth anything to us since the Trump tax cuts raised the standard deduction to $24,800 for married couples in 2020.)
Is refinancing worth it?
The three main factors that determine whether it makes sense to refinance or not are
1) the costs to refinance ($600 in our case),
2) the monthly savings, and
3) how long you’ll be in your home.
A refinance calculator like this one can help. Because I’m a big financial nerd I run some net present value comparisons in Excel to satisfy myself that the math makes sense, but I think you can probably get pretty close by just estimating your ‘break even’ date: i.e.: how many more months would you need to stay in your home to earn back the refinance costs?
For instance, if your refinance was gonna cost you $1,200, but it reduced your mortgage payment by $100 per month, then as long as you stay in your home over a year the deal makes financial sense. Add a little buffer on the timeframe to make sure. I.e.: if it was gonna take you 2 years to get paid back, make sure you’ll stay for at least 3.
When you’re figuring your closing costs, make sure to only include costs that are truly lost to you, which are things like the new title insurance policy, lender/broker fees, any new appraisal fees required, and any state & local filing fees. Ignore the shuffling around of escrow items like all your prepaid items such as escrow property taxes, home insurance (if you pay through your lender via escrow), and the payments to the principal and interest itself. (Avoid any ‘points’ aka pre-paid interest though. And of course, always come up with at least 20% down to avoid PMI, which stands for Private Mortgage Insurance, or Preventable Money Incineration.
Savings: $50 – $100s per month
Tip #2 – Use a smaller garbage can
If your city charges you different rates depending on which size trash can you use, then it definitely pays to use a smaller can.
In Seattle, we have 3 types of waste: recycle, which is free, yard waste, which is cheap ($7 – 13) and includes compost, aka food, and also food-soiled paper or other compostable products, and garbage, which is the most expensive ($25 for 12 gallon bin up to $119 for 96 gals.) For just the two of us, we can easily get away with the smallest sized 12 gallon bin each week. We do this by recycling everything that can (junk mail, all those boxes from Amazon, glass bottles & cleaned plastic food containers), and throwing all of our food + compostable food containers in the yard waste (except for fat/oil/grease, which you put in a sealable container and toss in the trash), or in our own compost pile. Non-recyclable, non-food waste garbage turns out to be pretty minimal for us, and as long as your author remembers to fill up our small bin each week, we never run out of room. (Worst-case, you can set out extra trash next to your small bin and pay the one-off fee once in a blue moon. That’s far cheaper than paying for more than you need every week.)
Look up your city’s trash utility site online and find out what the rates are and how to switch sizes, and also how often you can switch sizes. Seattleites can go here to change trash cans (or yard waste bins) once every 12 months.
Savings: $5 – $90 per month in our neck of the woods.
Below: Seattle waste service pricing. Lotsa savings to be had!