With mortgage rates at record low levels, my wife and I decided to investigate refinancing our mortgages, and it looks like it's going to save us a ton of money if we do it, even if we just stayed a couple more years.

The arithmetic gets a bit complicated because we currently have a second mortgage with a balloon payment that comes due in about 10 years, but the upshot is that, as long as we come to the table with enough to get the loan-to-value ratio to 80% (which shouldn't be too much of a problem) we end up saving $500 a month, get rid of the big ballon payment, and have enough equity to potentially take out loans to do more repairs in the future.

The big variable, of course, is the appraised value of the home. Our region has maintained home values better than almost anywhere else in the US, so I'm not very worried about the value being less than what I paid for it 4 years ago, but I do want to make sure the appraisal comes in as high as possible, which would lower the amount we have to put down now.

The house is in very good condition structurally. The roof is in good shape, the HVAC is all very modern and efficient, etc. The major problem areas would be the asphalt driveway, which is cracked in many spots and in need of repair/replacement, the front walkway, which currently consists of rickety concrete pavers, and a timber retaining wall in the back that's falling over from the weight of the earth behind it. These items are all in the "eyesore" category that I've heard appraisers focus on when they evaluate home values.

I've gotten some estimates to re-do the retaining wall with blocks, and to redo the walkway and driveway with poured concrete. The estimates so far seem pretty reasonable to me ($3500 for the wall, $6000 for the walkway and the driveway) and they may come down as I get a couple more estimates, but I'm wondering if I need to rush these repairs to be finished before the appraisal or if they can wait until afterwards. If I do them now, it's more money we have to dump into the house now at a time when we may have to pour even more into the refinance if the appraisal comes back low, but putting the money in now may itself improve the value, and they're things we'll have to deal with at some point anyway.

I guess my main question is how much these kinds of repairs are likely to pay off in helping improve the appraised value. I know I won't get dollar-for-dollar or even half of that, but my goal is to do whatever I can now to avoid any negative surprises from the appraisal. Anyone have any experience with this sort of thing?

If the value of the house isn't going to go up more than what it costs to do the upgrades then why not just use the money to pay down the loan?

Well, mainly because we probably have to do these repairs sooner or later anyway, so I thought I might as well try to get some immediate value out of them beyond the value of having things not look awful or be dangerous to visitors.

The retaining wall is leaning at about a 20 degree angle, and getting worse each year (it was vertical when I bought the house just 4 years ago.)

The driveway is in bad cosmetic shape, which we could probably patch up and seal, but that's just putting a band-aid on it when it's got multiple cracks that will just crack again with winter ice and snow.

The walkway is flat-out dangerous right now, with sections of itteetering when you walk on it. I've tried using portland cement to stabilize them, but it lasts for 3 months and then the ground settles and they're wobbly again.

I don't have much to say about influencing the appraisal, but I do know that a lot of this stuff falls into the category of maintenance. You're not adding size to the home, you're just fixing what's become run down.

What I do have to say is this: get a 30-year fixed-rate loan. That's how you exploit the artificially low interest rates we have now and use the debt as an inflation hedge. You'll screw yourself hard if you get another 10 year balloon.

You may want to read Peter Schiff's "Crash Proof 2.0", which has a section about how to turn whatever equity you might still have in the home into something resembling a hedge fund.

FWIW,

Jim

Yeah, we're definitely going fixed rate if we do this -- both the current loans are fixed, but at much higher rates, and with a balloon on the second.

I actually did consider going with a 20-year or 15-year fixed to get a lower rate, since I don't buy into the inflation boogeyman theory, but the rate difference isn't quite enough to make it worth stretching our monthly budget that much.

Best of luck to you, Tony. My wife and I are considering doing the same on our condo, and even though our area has been pretty good for home values, condo values really took a hit. I'd estimate that we lost around 1/3 the value of our home, based on the most recent comparable sale.

Still, we're looking to refi as well because I think we're at around 6.5% so we can certainly do better! Definitely let us know how it turns out for you.

I would say fix up the pavers no matter what - if the appraiser feels at risk walking into the property that won't set them in a good frame of mind If you can bodge fill the drive so it looks nice, that might do for the moment.

In the UK the valuations for remortgages are often based on models of sale price data of the area (the sale prices of properties are public data here), and nobody actually visits. IIRC if they do, they just say yes/no to the proposed value which is given to them.

Not intending to start another political post, but you can find more accurate measures of inflation. The CPI is a very bad measure of actual inflation, and this is by design so the government can understate it and thus borrow at lower interest rates.

Those who have conducted an honest analysis of inflation are remarkably consistent and all seem to show current inflation between 10-11%, and trending higher. That certainly seems to be much more realistic given all of the extra liquidity (money) in the system due to the QE programs. Not to mention everyone's experience with rising prices everywhere. Regardless of whether you think the stimuli were a good idea, nobody disputes the fact that they add money to the planet -- that was what they were intended to do. And that's what inflation is -- by definition.

What makes this interesting for a home owner is that you can borrow today at around 4%, and pay this loan back with money that is 10% cheaper every single year.

Policies like this (deliberately) encourage borrowing, and theoretically spending, rather than saving. So you don't want any equity or savings in this kind of environment, you want debt. The hedging strategy is to borrow as much as you can from your house (leave no equity in it), and then take whatever equity you have and invest it in non-inflating assets (either non-US dollar assets or in a commodity of some kind). For example, let's say you owned your house outright. You can borrow the whole value at 4%, then take the money and buy a Canadian municipal power company bond that yields 9%. You make a free 5% on your money with essentially no risk. And that doesn't even consider inflation. In US dollar terms, you're making about 15%. You can take the dividends from the bond and use them to pay your mortgage.

One reason this "stimulus" doesn't work that well right now is that consumers are tapped out. So nobody has any more equity or credit left to spend. Meanwhile, corporations will take some version the hedge vs. investing here where they take a 10% haircut every year from inflation. This is why "hard money" economists (also called "Austrian economists") will say that credit does not drive production, which they also say is the only way an economy grows (not from consumption).

But it doesn't matter where you fall on any of these arguments. Even if inflation were zero, you can still get a 5% nearly risk-free hedge due to the artificially low rates right now, and that means that you should carry zero equity right now.

Again, FWIW,

Jim

Oh, don't you worry -- you should I'm never one to shy away from yet another political post here.

I want to be an informed consumer, so I've been hunting for this double-digit inflation monster you Austrian types keep talking about, but I can't find him. I understand where you're coming from, but you're going to have to show me your source for the 10% inflation number.

Alternative inflation measures like MIT's Billion Price Index (which only covers goods, not services, and must therefore be compared to the equivalent BLS numbers) don't show any significant deviation from the core inflation numbers that BLS puts out. Every time I've seen a chart or table from a hard-money type purporting to show mass inflation, it's been shown to be focused on specific sectors (such as energy or food) that swing in price wildly from year-to-year, or the x-axis was constrained to show an inflation spike after a long, steady period of deflation. I have yet to see reliable evidence that inflation fears are warranted -- and yes, I know that it can come suddenly and spiral out of control -- but that does not mean we should ignore the equally destructive risks of deflation.

I have a coworker who follows the economy very closely who recently yanked all of his 403b money out of stocks and put everything into Vanguard's U.S. Treasury fund. He's seeing what I'm seeing, and what global investors are seeing -- the U.S. dollar is the safest investment vehicle in the world right now, and, if anything, we're headed for a period of deflation, not inflation, and since deflation is devastating for people with a lot of debt, I'm hesitant to pull all my equity out at a time when (in my view) all signs point to inflation risk as minimal to nonexistent.

But I'm happy to see what sort of data you've seen that I've missed out on!

The other aspect is, without at least 20% equity, I can't take out a home equity line to do future repairs, etc. My mortgage guy told me that as long as I get to 20%, I can then take 10% out as a loan basically the day after I sign, but still avoid paying mortgage insurance. So, even if I did want to max out my debt to take advantage of future inflation, putting some money in now might make sense.

Yeah, if our appraisal came back and told us we've lost 1/3 the value of our house, we obviously wouldn't be able to do this, or if we did, we'd have to pay mortgage insurance, because we'd start out well above 80% loan-to-value. Of course, the upside of a drop in the value of the home is that the monthly payment will be a lot less after the refinance, so depending on how much equity you guys have now, it might still be worth doing.

Luckily, the comparables in our neighborhood seem to have done okay, which is part due to Pittsburgh having never really spiked too much during the bubble, and part due to buying in late 2007 after the prices were already on their way down. So I don't see that kind of precipitous drop in value happening.

Yeah, I've heard that the appraisers here don't do too much in the way of inspecting the house, and rely more on an overall sense of what the neighborhood values are like -- but I also don't want to give them any reason to lowball their valuation.

I was also considering the walkway as the highest priority item, but doing the driveway at the same time will save a ton of money, since concrete contractors like bigger jobs. So the real question is do I fix it up so it's stable (but not pretty) or cough up $6000+ to make it stable *and* pretty. I'm leaning towards the latter, at this point.

I'm in the same position with refinancing. My pool needs to be resurfaced, it is so bad that I've kept it empty last year. I also need to 'freshen' up the rocks in my yard, apparently that is the term the landscaping company uses when you need 16 tons of rocks to fill the yard back in. Sometimes it makes you wonder if owning a home is worth it :P At least my roof is still good (for another 8 years), my boss paid over $14,000 to repair his roof this summer.

I can't say exactly how appraisals work, but if we're talking about work that you would have done, regardless, then it's sensible to do it sooner than later.

For what it's worth, I'm a fan of spending the bucks and fixing small problems before they become big problems. About the only maintenance that I'm deliberately deferring is replacing a dead tree on the side of our house, since we're still technically in a draught and I don't want to pony up for new landscaping until the weather gets less insane.

As to all the investment action going on here, all I'll say is that I'm a convert for low-fee index investment. Pick your asset allocation (stock vs. bond, large vs. small cap, etc.) then find the cheapest way to get it, often Vanguard ETFs.

I don't have the cojones to pull everything out of the market. My market investments are for a 20-30 year time horizon, not for next week. Yeah, the numbers have gone down, but that's okay. That's not money we actually need for anything, any time soon.

My wife and I re-financed to a 4.0 15-year fixed, from a 6.something 30-year fixed. The payments ended up being negligibly higher (about the cost of a cable bill ;)). It's not the rate difference that makes it worth it, but the time factor. By going this route, we shave off something on the order of $250k from our interest payments, because we aren't carrying the loan for an additional 15 years.

But would you do the same if you were moving out within, say, two years?

I'll admit not being all that familiar with hardscaping in northern climes, beyond being aware of its difference due to frost heave, but the driveway and walkway pavers sound like DIY projects to me.

I've successfully used asphalt patch products to fix cracks and holes by hand. I'm not talking about tar patches, but, essentially, bags of asphalt concrete that you can stuff into the cracks and holes and compact to make them effectively, over time, part of the existing blacktop.

As far as the walkway goes, you should be able to fix that by digging dirt from underneath the pavers and replacing it with some stone and stone dust.

In both cases, you'd want to compact it, and doing both at the same time would be a great time to rent a plate compactor. It'll be a hell of a lot easier than tamping by hand.

Yeah, like I said, I've successfully stabilized the walkway by digging out and filling in, but it never lasts. Using portland cement the last time helped maintain it for longer than usual, but a couple of them are wobbling again, and I'm getting tired of having to fix it all the time.

I've never gotten good results from asphalt patching, but I've also always used tar. If I decide the concrete isn't worth it now, I'll definitely try that Sakrete stuff (or something like it.)

The thing I like about concrete (for the walkway and the driveway) is that when it's done, I never have to worry about it again, save the very occasional re-sealing. Also, nothing's going to grow up through it the way grass and weeds have been doing in-between my existing walkway sections. It's not going to be easy to cough up $6kish right before a home refinancing, but I only see the asphalt patching/sealing cycles getting shorter and shorter over time as the existing surface continues to wear down.

Based on what I know about your climate, you probably need to dig down at least 8" in order to keep your walkway pavers from heaving.

Ah, no. Definitely not. In that case, I'd go for the option that puts the most money in my pocket now.

But a refi could conceivably lower my monthly mortgage payments, or at least let me pay less in interest, which would do exactly that.

Look at the total amount paid in 15 yrs vs. 30 yrs. If the payments can be handled, it's worth doing. The extra amount paid goes mostly to equity.

Two years? Most likely the loan fees will eat any savings.

Tony, I don't get to the BBS as often as I would like these days.

I think what you're saying is that you don't see evidence of rapidly rising prices. But rising prices are not, technically, inflation, but rather are the result of inflation. "Inflation" is precisely the increase in the amount of money in circulation. Nothing more. Eventually, goods will exchange for more of this money, because there is more money for the same amount of goods. If we all decided to add a zero to our federal reserve notes, the money in circulation, measured in dollars, would increase 10x, but nothing else would have changed, so prices would immediately rise 10x. In "real" terms, nothing would have happened.

But this is not what happens when central banks "add liquidity" (inflate). In my silly example, everyone equally participated in the money devaluation. The problem with inflationary monetary policy is that the money enters the economy from a few participants (bailed out corporations or the government agencies spending the new money), thus allowing them to unfairly purchase goods (labor, debt, whatever) at the old prices. This is a great scam for the recipients of the new money, at the expense of everyone else. Eventually the new money makes its way through the economy and prices stabilize. Those who save money in reserve notes or treasury bills are harmed the most because their notes do not magically add zeros -- they are just worth less in real terms.

We know that over $2T has been added to the supply of dollars in the last 3 years, and it appears that the Fed may have lent as much as $15T it does not have in reserve to (mostly) European banks. This is the inflation; the rising prices come (inevitably) later.

But prices *are* rising. Food, gas, clothing and most hard commodities are up around 50% over that 3-year period. The CPI doesn't consider these prices because they are "too volitile", which really just means they respond the most quickly to changing money supply.

The best part of the hedge I mentioned, however, is you can make a free 5% whether prices rise or not. If they do, then you come out better, but even if the dollar doesn't continue to lose value you still make money from the interest-rate spread.

Jim

How long do the economists you listen to say it generally takes for an increase in the money supply to affect prices? The Fed has been engaging in expansionary monetary policy for several years now, but we've seen no significant movement of core inflation or the broader inflation measures like the MIT index I mentioned earlier in the thread.

Please show me a source for the 50% food/gas/clothing spike over the least three years -- that's a lot higher than the numbers I've seen. One can cherry-pick the noisy food and gas prices over a short timespan, but once you zoom out, even those are relatively stable. I've never seen anything suggesting a 50% rise over 3 years in those

At this point, with 10% unemployment, some short-term inflation is a good thing. You'll get no argument from me that a big inflation shock later on would be a drag on a functioning economy, but our economy is not functioning, and needs some juice right now. Expansionary monetary policy can provide some of that.

As for my own situation, we're definitely not going to park any more money in our house than we need to, but we'll at least need to get to 80% loan-to-value to avoid mortgage insurance. If the house appraises high, we'll be able to take some money out, if it appraises low, we'll have to put some in. But you're right that there's no good reason for us to pay a whole lot of the loan down right now, and we probably won't.

Repair-wise, we decided that for now, we're going to just do the walkway and the retaining wall. Values in the neighborhood seem to have gone up quite a bit, so this might help us out a lot if we get a good number from the appraisal.

Sorry, but inflation does not help an economy. Inflation merely hides the adjustments that must happen. In high unemployment, wages must drop. In our current situation, housing prices must drop to clear the market. Rather than letting wages and house prices drop, we're inflating the currency instead. This is delusional, and worse in the long run than just letting the market adjust.

There's a million references to rising commodity prices, just look on google. You'd have to be blind to not realize prices are going up. Consider the prices of gold, silver and copper since 2005. Consider the price of gasoline vs. 3 years ago. This is not just volatility, and to dismiss it as such is wishful thinking, at best. Here's just one from the first page of google results: http://www.denverpost.com/business/ci_19151044

Here's a guy who tries to untangle the mess of the government's redefinition of terms:

http://www.shadowstats.com/alternate_data/inflation-charts

During the Great Depression, with unemployment around 30%, the government redefined what it meant to be unemployed by declaring that you needed to be 16 years old to be legally unemployed. This is just one manipulation. Today we're struggling with a "real" unemployment of at least 17%, with some suggesting it's close to 25%. The government number only includes those workers currently collecting unemployment benefits, and it's as crooked as the rest of the government statistics.

Remember "stagflation"? That's what we've got now. Rising prices are not good for anybody. The idea that deflation is horrible is a myth. I realize this makes me sound like a lunatic, but these are lies the government tells the people to get them to go along with the theft of their savings.

Read this short book by Murray Rothbard:

http://mises.org/books/whathasgovernmentdone.pdf

Edit: here's a paper describing the deliberately misleading and changing CPI calculation landscape. He also makes the important point that understating inflation overstates GDP growth. This is why "double dip" fears are stupid -- we're still in the midst of the huge first dip. Despite real inflation much higher than reported, the government was only able to fabricate a paltry 1.7% GDP growth in the last 12 months. In reality, the economy contracted around 5%.

http://www.shadowstats.com/article/consumer_price_index

Another way to look at is that this country (the U.S.) owes so much money (depending on how you look at the numbers, anywhere from seven to 14 trillion dollars) that there are only two ways to get out of it: default, or hyper-inflation. Since our "leaders" (there's a joke!) are concerned only with their next election, default is not an option. So that leaves...

tanstaafl.

Well said. You did the right thing. I'm trying to work a plan to leave the country also. :-)

Hyperinflation only means the destruction of the currency, though. So as long as you have real assets (non US-dollar denominated), you can survive it. But it's going to hurt bad.

You specifically said that "Food, gas, clothing and most hard commodities are up around 50%" over the last 3 years. I can't find any recent charts for food and clothing, but if you can find some, please post them.

The price of gas was at ridiculously low levels 3 years ago, but if you go back just a year prior, it was at $3.11. It's just kinda bounced around over the past six years, and is now around $3.40 or so, and has been on its way down since the spring. That, sir, is volatility.

You can't just cherry-pick a particular window to justify inflationary fears -- you have to look at the trend over time, and gas prices are among the most noisy prices due to the oil cartel, speculators, etc, so you have to be even more careful to not infer wider trends from spikes over 3 or even 6 months. Panicked statements like "prices are rising at the fastest rate ever" are uttered by clueless financial reporters who don't bother to inform readers that they fell at the same rate a few years before.

"The idea that deflation is horrible is a myth?" It's certainly horrible for borrowers, which makes it horrible for the economy at large, and falling prices mean lower revenues and profits for corporations.

Neither runawway inflation nor runaway deflation is desirable, but to say deflation is not a very bad thing is an opinion relegated to the crankiest of crank economists.

I have thought long and hard on that. Unfortunately, my primary asset is my (and SWMBO's) retirement incomes, a quite livable amount but only as long as the US Dollar is worth anything. I am concerned about what will happen to those incomes when the dollar collapses, probably right on the heels of the collapse of the Euro.

My situation where I live now is (quite deliberately, I might add) optimized for survival in the very bad times that are coming: I own my house free and clear, my cost of living is a small fraction of what it would be in the U.S., I have no debts, not a lot of cash on hand, in an agricultural community that might be safe when the food riots start.

I am afraid that there are some very interesting times ahead.

tanstaafl.

The time is coming when those cranks will be seen as the ones who stuck with solid principles and turned out to be right in the end. Calling them "cranks" does not contribute anything to the argument. The authorites love central planning, so you can always appeal to those authorities to support the now-fashionable Keynesian ideas. But while they all claim that "nobody could have seen the 2008 collapse coming", the "cranks" did see it coming and warned about it.

Prices are not the measure of inflation, like I said. Money supply is. The inflation has already happened (and will continue).. Prices are beginning to rise and will contine. Wages are declining in real terms and this will continue. You've got to be smart enough to recognize these things before the prices are spinning out of control. It's too late then. Prices *are* rising, you even admitted it. You prefer to think my time horizon is too short and its just a *coincidence* that prices have risen after the $2T+ was added to the money supply. Or maybe it's the weather, as the administration has said. Or maybe it's just the early signs of the inevitable. I understand the appeal of denial, especially from those seeking (re)elected office, but fortune favors those who accept reality.

Just study the issue for yourself and make up your own mind. You are being lied to. Is that so hard to believe? This is the same government that dreamed up the Gulf of Tonkin hoax, tested nuclear and biological weapons on it's own citizens, lied about WMD -- I could go on and on.

Think for yourself. Read both sides, consider their motivations, and then decide. You are simply repeating the sound bites of the media.

The most deflationary industry, perhaps in history, has been computers. It has been a huge boon for people. Spending and borrowing does not drive an economy. Savings and production drive economic growth. You have it backwards.

Jim the Crank