Why we chose to refinance our 3.75% mortgage

House icon on green field

KJ: One of the benefits of lower interest rates these days is the very low cost of credit: be it mortgage loans, home equity lines of credit, car loans, student loans (er, generally…), etc. Well, for some reason, credit card interest rates don’t EVER seem to decline, so that’s really the exception to the rule and why you should avoid carrying any balance from month-to-month anyways. But, just because interest rates are lower, doesn’t mean you should go out and take on NEW debt just because! With rates as low as they are today, we chose to refinance our 30 year despite our historically-low 3.75% mortgage rate. I would have never thought I would utter those words, but crazy as it is, we did, and here’s our story why (thankfully we weren’t around to purchase a home when interest rates for mortgages were in the TEENS in the late 70′s/early 80′s!).

Some background
When we moved into our current home, rates were about as low as they had been in all of the recorded history for mortgage rates. Unbeknownst to most, interest rates and mortgage rates declined throughout 2014 and into the first part of 2015. So, what were we to do? How could we benefit from the decline? While interest rates themselves actually aren’t all that different from when we bought, fast forward a year of continued savings, changed goals and circumstances, and the timing was right again. So, after a lot of number crunching and analyzing, and rates dipping to a point that we were comfortable, we decided to go ahead and take the plunge on refinancing. Of course there are costs associated with refinancing (loan costs, appraisals (if needed), surveys, and title policy to name a few), but here is the breakdown of why we still chose to refinance:

We switched to a 15 year mortgage
What!? Yes, I know. I generally am quite averse to getting a 15 year mortgage, but it was right for us for a number of reasons. One of which was that it allowed us to drop our interest rate even lower than it was by more than 0.5%. We locked in 3.125% for fifteen years. But, the fortunate thing about home “amortization schedules” (i.e. those sheets of paper at closing that show how much EACH payment EACH year for what seems like an eternity counts toward your loan principal versus what goes toward interest) is that a 15 year mortgage is NOT double the payment of a 30 year mortgage. In fact, ours only changed by a few hundred dollars more. Plus, each payment will now have roughly DOUBLE the amount applied to principal than it had last month. And, if something were to happen to either of our incomes over the next 5-10 years, we have continued to build up our emergency fund to be able to weather the storm.

Housing prices in our area have increased
With housing prices increasing in our area over the last couple of years, we were able to eliminate some costs by having an even lower loan-to-value of our mortgage simply due to housing prices having increased. Not something everyone could expect to do, for sure, but something that just happened to work in our favor this time. We don’t have any intentions of selling in the next 5-10 years, but hopefully those values can maintain themselves!

We were able to go with a better loan servicer
Not much that you really can do about this, but it was nice to move to someone who has a little better loan servicing department, better website, etc. Not that we’ve ever run into any servicing issues, but just nice to have a little more technology and website behind the company. As with most loans though, they end up getting sold off, so that may change in the future anyways, and it wasn’t that strong of a reason for us to make a change, but one for the refinance column nonetheless.

You skip a payment
While not in and of itself a reason to refinance since the costs far outweigh the benefits of refinancing regularly, it does help. In fact, with the refinance we did recently, by still making our regular payment in the month that didn’t require one, we were able to actually get ahead and have a lower principal balance than had we not refinanced in the first place. Break-even rate already hit!

We are debt averse
We just flat out don’t like debt. Even the “good” kind that mortgages and the like are often referred to as. Sure, it’s good for your credit score to have diversity in credit types (home, auto, credit card, credit lines, etc.), but there’s just something about a regular fixed payment we don’t like (I guess better than an irregular, variable payment though!?). So, long story short, with our refinance, we’ll get to this goal much quicker than we had planned before.

Uncertainty versus certainty
While with interest rates as low as they are today, the math would otherwise suggest that you mortgage your house to the hilts and you take on leverage to be able to earn more with productive assets, we chose a slightly different route. It’s a little “a bird in the hand is worth two in the bush” if you know what I mean. It’s about balancing the certainty of what you KNOW the interest rate is on your loan now, versus what the next DECADES worth of investments, expenses, life, returns – you name it – may be. As well, you don’t know that like clock work over the next 20 years that you would even follow the exact schedule of what you can to make the analysis work like it needs to.

    Have you considered refinancing?
    Have you refinanced in the past?
    Tell us about your experiences in why you did or did not go through with it!

Image courtesy of hyena reality / Freedigitalphotos.net. Why we chose to refinance our 3.75% mortgage is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

How you can afford to travel: 7 tips you should know

Wood bridge piers with smoothy sea water against beau
AJ: I found this article one day while mentally escaping from my hectic life on pinterest and thought it was a really unique perspective on one way you can afford to travel. She references a lot of the tried and true factors that we leverage (see our post on How to use credit cards to your advantage) like making your credit cards work for you throughout the year but also has some other tips that we love.

Checkout this article we found, too, with some great ideas on how a blogger discusses her experience with traveling in a cost effective manner: Travel, Paint, Repeat blog article.

KJ: Once you catch the travel bug, you get this strong desire to keep searching the globe for different foods, different cultures, and different ways of seeing the world. Traveling the globe has an allure of being very expensive, but there are countless ways you can find creative ways to travel on the cheap – or at least cheaper than you thought was possible. Here are some tips on how we enjoy ourselves while we travel, yet keep a healthy perspective on our budgets.

Scour the internet for airline mileage credit cards
AJ: This is how we were able to subsidize the cost of our most recent European vacation. We found a couple of cards that were offering 50,000 miles for signing up and completing a few purchase milestones. That’s right: 50,000 miles just for signing up for a credit card and meeting some qualifications. The key is to read the fine print, so you know exactly what you need to do to get those miles (and how long it will take to get it credited to your account). Don’t get a credit card where the minimum purchases required are above what you spend on a regular basis, and don’t extend yourself on the credit cards just to get miles. That’s ill-advised and dangerous, and you will end up spending more on interest and charges than it was worth it.

After a year, our cards moved to an annual fee style setup, so we simply cancelled the cards at that point and continued using our other, regular cards.

Balance working hard with playing harder
During our annual Valentine’s Day spa day last year my facialist, a beautiful Russian woman, told me that “we Americans work too hard and don’t enjoy life enough!” Every time KJ and I are in Europe we wind up feeling the exact same thing after a few days – we work too hard! Alas, we have no intention of leaving the states permanently anytime soon, so why not make all the working hard worth it by playing even harder on vacation? I’m almost as addicted to the working hard as I am to the playing hard because it makes it THAT much sweeter.

Search online forums for advice
My newest travel on a budget find came from Google. KJ and I have vacation days to burn and while I really wanted to go back to Europe, KJ wanted to stay domestic, so we went to Boston! In my hunt for must-do things and must-eat places I found this online forum where chefs can post their nightly, weekly and monthly specials – a totally public-facing, underground-esque approach to what city-based magazines used to provide 10 years ago. Prix Fixe menus galore, dinner for two specials, happy hour deals, you name it, they cover it. We sorted through all of them and picked out the must-eats for us and then built our schedule around it.

Build a budget
Even if it is quite a simple calculation, at least begin to add up what you plan to do on the trip(s) including travel, meals, transportation around the city(ies). That will help you frame what you have to work with while not just assuming you have the money to pay for anything your heart will desire. Knowing what your average spend for the day is will go a long ways in making sure you don’t overspend – it’s amazing how quick a coffee here, snack there, drink here can really add up and impact your spend for a trip.

Avoid high-priced hotels and accommodations
One of the best ways we have found to help save some money on our travels is to find local bed and breakfast stops or apartment or house rentals for a few nights (or week). It’s not just the nightly cost you save, but most places we look for have some type of kitchen, so it allows us to experience the local grocery stores and make some meals ourselves which saves some extra money since it’s cheaper than going out to a fancy restaurant.

Plan ahead and plan last minute
Wait, what? One of the keys for keeping costs low is to plan really far in advance. That way you can get some deals for being some of the first to book your trip. However, don’t be averse to last-minute deals either. Sometimes that’s the best way to find a good deal where airlines, hotels, rental car companies, etc. have extra inventory they are trying to get rid of, so keep on the lookout for those opportunities if your lives and jobs allow for that last-minute flexibility.

Understand that luxury doesn’t mean high priced
There isn’t always a direct connection with price and luxury. We have been in plenty of hotels and locations that were top dollar only to find that they were far less than what we expected, while we have found some great gems on the cheap. Don’t always associate high cost as being a better experience. Sometimes it’s the lower to middle part of the market that provides you with the best travel experience.

    What are your travel secrets?
    How do you keep costs low while you travel?
    Share with us what your experiences are.

Image courtesy of khunaspix / Freedigitalphotos.net.

How you can afford to travel: 7 tips you should know is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

2016 proposed budget implications for young savers

US Capitol Building

AJ & KJ: Last week the President submitted his proposed budget changes and the implications for retirement accounts. Were the proposed changes to be approved, there are hefty implications for young savers and we’re covering a few that are especially impactful for young savers below. While the point of the article is not at all to take sides in either direction, it is merely to point out some of the proposed changes.

We all plan for our savings and our future, but one of the most uncertain aspects of planning for the long-term is the tax code. It inevitably changes from time to time, and in many cases can be quite sweeping in the changes brought. It’s important to take each proposal below, along with other ones you might read, and understand that the tax laws are likely to change at some point. Status quo just doesn’t exist in this area of our lives!

1. Limit Roth conversion to pre-tax dollars.
Essentially, those fortunate enough from an income standpoint (often used for married couples with combined incomes greater than $181k annually for 2014) who have made contributions to traditional IRAs and have then converted those contributions to a Roth due to exceeding the $181k limit for direct Roth contributions would essentially have their tax benefits eliminated.

This method (often called the “back door Roth IRA contribution”) hasn’t even been around for all that long (since people prior to 2010 couldn’t even convert to a Roth), but this strategy could be closing nonetheless, which has far-reaching implications for couples earning more than $181k annually and contributing in this way.

2. “Harmonize” the RMD rules for Roth IRAs with the RMD rules for other retirement accounts.
This is a serious game changer. This provision would require that distributions from Roth IRAs be taken upon turning 70 1/2, the same as traditional IRAs. This would make us very, very unhappy people. One of the strong benefits of a Roth IRA as part of an overall retirement picture is to not HAVE to take funds out at any required point. Thus, it makes very, very good long-term monies that could be used in very late stages of retirement. Not so much were this to be put in place! Wah wah.

3. Create a 28% tax benefit for contributions to retirement accounts.
If you are in the 28% income tax bracket (or lower), this provision would not directly impact you. However, those who are in a higher tax bracket wouldn’t receive a full tax deduction for contributions or deferrals into a retirement plan. No thank you.

4. Establish a cap on retirement saving prohibiting any additional contributions.
This proposal essentially favors those who save LESS than whatever the established cap on retirement savings is. We’re REALLY not fans of this (even though the time this could even be reached is a long, long way off). We’re pro-savings, especially at a very early point, so this disallows people from saving as much as possible within tax-favored accounts. Sure, the limits proposed are quite high, but still, why create a stigma about accumulating “too much” in a retirement account? Don’t punish those that have been fortunate enough to accumulate such sums!

We’re generally pro-savings, pro-tax benefit planning people, so while these are simply provisions at this point and we won’t know for many months whether they are to become part of our reality, it’s incredibly important to us that we be allowed to maximize our retirement savings without the rules of the game changing mid-stream.

Ultimately, most of these provisions mean more complexity, more nuances, more limitations, etc. that make it all the more cumbersome to navigate your personal finances. Hopefully many of these (as they have been in the past) are nixed and don’t make it to the tax code, but the provisions proposed (these in addition to NUMEROUS others) are just good examples that the tax code is in no way permanent. All you can do is plan the best for the rules you know now, and then adjust course as those changes are thrown your way over the years.

For more information about the budget proposals, read here.

Image courtesy of Vichaya Kiatying-Angsulee / Freedigitalphotos.net 2016 proposed budget implications for young savers is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

What makes you happy?

Smiley face image
KJ: What makes you tick, what makes you happy, what gives you joy? Quite a loaded question I know! Well, let’s take a step back a little from the purely philosophical and look at it from the perspective of personal finance. Finding the things that make you happy can spell financial success for you and your family.

AJ: So often personal finances and any discussion of money can feel overwhelming, but there’s so much happiness in life that money is really just a means to an end and keeping that perspective changes the conversation completely.

So, which of the following make you happy?

What about paying your bills on time. Does that give you warm fuzzies?
Um, absolutely. Being ABLE to pay our bills on time is something I’m endlessly thankful for. Being able to leverage credit card perks to our benefit relies entirely on our ability to pay the bills on time each month in full, so this is a huge source of comfort.

Being in control of your finances.
Sure, this one is a bit of an accomplishment, and I don’t think there’s anyone who feels they are in TOTAL control of their finances. Why else would it be called an emergency fund? You never know when that emergency will come up be it medical, home, job interruption, etc. Find the specific method that helps you stay up on your expenses: good old pen and paper (AJ’s preference is the Moleskine Classic Notebook since you can store receipts in the back, plus it’s a good carrying size), Mint.com, Quicken, Yodlee!, or whatever other app suits your fancy.

Being in control also means that you’re having conversations, you have plans in place and you’re in agreement on how money is earned and spent. Control in our house looks like KJ managing investments and AJ managing variable expenses.

Having no debt.
If it gives you personal satisfaction to pay off debt, then start paying off your smallest debt first. You’ll see the quick progress you’ve been able to make, and then it can give you just that motivation you need to keep paying the same amount until the next card (or debt) is paid off. And so on and so forth. Keep the course, and don’t get frustrated along the way. It’s a process, and it’s something that your future self (and family) will surely thank you for!

Building up your savings? Retirement, emergency, or just because.
Doesn’t it feel great to watch those account balances increase month-over-month? Sure…there are market forces that can cause a temporary pause (or pullback), but watching it quarter over quarter and year over year can be a great way to see the kind of progress that you are making. And, for me, it really motivates me to try and do MORE.

Getting to work early.
Maybe getting to work on time (or early) will help you invest in yourself and earn that next promotion. At the very least it shows your employer that you’re invested in what you’re doing and in your role within the company. Creating a point of differentiation between yourself and your peers is instrumental in helping your boss see your potential.

Getting a pat on the back for a job well done.
Find out what it is that got you that pat on the back. Was it being timely (or early), securing a large client, passing a certification, your communiation skills among your team members (or cross-team)? Whatever it was, repeat to assure you’re doing what you need to at work!

Watching your kid graduate (kindergarten, high school, college).
Sometimes this is a financial commitment, and other times it’s just a matter of the time you spend with your kids to help them learn and teach them.

Giving back in a meaningful way.
For us, the earning money piece is a small piece in what brings us financial happiness. Being able to share what we’ve been blessed enough to earn is very closely tied to our overall happiness and giving back in ways that improve our community ultimately benefits us all.

So, what makes you happy?
If you can reflect on what has brought you enjoyment over the years, then plan your next month around how to make that a priority to replicate that. Help yourself and your family align around the things you all agree are important and fulfilling as a source for discussing finances which is much more fun than talking about cutting costs to stay within budget!

What makes you happy? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Five smart ways to maximize your budget starting today

AJ & KJ: With a fresh start to the new year, here are some ways you can stretch the value of your dollars just a little bit more. Most of these are so simple, you’ll probably wonder why you haven’t done this before. With this year just beginning, sit down with your budget and see which of these options you could adopt for your family to stretch your bucks just a little bit further in 2015.

Buy in bulk and store smartly
Whether you’re trying to plan for just yourself, you and a significant other, or an entire family, buying in bulk can be the best way to stretch the value of your dollars.

One example of when we did this recently that was an AWESOME find was our recent fruit purchase at Sprouts. They were doing a special on fresh berries for very cheap, so we did what we always do when something is heavily discounted – we buy a TON! We probably spent about $70 on fresh fruit alone, and you’re probably wondering how we didn’t have so much of it go to waste since berries are obviously (pretty quickly) perishable. Angela laid out the berries on several baking sheets in one layer and threw them in the freezer. After about a day or two, we essentially had individually flash frozen berries that could then be pilled into ziplock bags for future use. A month later, we’re still filling our smoothies with the fruits of our labor (pun intended!).

Also, anytime chicken, steak, pork, you name it, is heavily discounted, we buy about as much as we can. Then, as soon as we get home, we portion out the food into individual ziplock bags and store it in the freezer, so we don’t have to thaw the whole package when it comes time to actually use it.

The key to success with buying in bulk is knowing what you typically pay for specific items prior to buying large quantities of it. Even when we don’t need something, I’ll stock up on it because it will ultimately save us money though at times it can feel like I’m a food hoarder!

Track your expenses
If you’re not tracking your expenses, how will you be able to identify ways to trim your expenses? The answer is you generally can’t! So, jump on the bandwagon for Mint.com, Quicken, or any of the other expense tracking sites to find one that works for you and your family to keep you on track.

For us, the wheels come off of our bus completely when we’re not properly tracking our expenses. We each manage expenses in a different way, so we can compare notes on what’s already hit the accounts vs. what is still left to hit in that month to ensure we’re staying the course.

Credit cards with rewards points
We’ve recently reassessed our credit cards that we use to see if there is a way to maximize our purchases. It ultimately came down to making a few changes to the cards we have on hand.

We now are utilizing the Fidelity American Express credit card where we can earn 2% back on ALL purchases. Sure, Amex isn’t approved everywhere, but it’s now our main go-to card for purchases. Previously, we used the Chase Freedom card where you would get 1% cash back on all purchases, but 5% back on certain rotating categories. Then, you would get an additional 10% bonus on your rewards each year. After 2015, Chase is no longer going to be offering the 10% bonus, plus, the rotating 5% categories are seldom how we actually spend our money, so it’s really not all that great of a card for us anymore since the card only ends up offering just slightly more than 1% on average.

Fortunately too, we found another card through American Express that offers 6% back on supermarkets and 3% back on gasoline with 1% back on other categories, and despite it’s annual fee, it’s worth it for us based on our home’s expenses in these categories. Not all credit cards with an annual fee are worth it, so you just have to run the numbers and see how your family spends money to know if it’s worth it. The key is first tracking your expenses, so you can be able to easily do this assessment!

This is something that Kirby manages for us, as I have a hard time keeping up with which expenses can be maximized on which cards. It’s SO worthwhile to get your credit cards to work for you, and there is no one-size-fits-all approach, and it’s not a set it and forget it approach.

We only recommend products that we feel strongly about, so for more details on these cards, please contact us. We can send additional details on these cards. With the the regular Amex with the extra grocery rewards, you can get a $150 bonus after spending $1,000 in the first three months (plus it will help support our blog a little bit) – win/win!

As a final caveat, don’t get a credit card unless you will be paying it off in full each month. Carrying a balance is a surefire way to eliminate ALL of the rewards benefits in an instant.

Grocery rewards
Join your local grocery store rewards programs, and read the fine print! Our preferred grocery store is Tom Thumb, and their Just 4 U program is excellent and super easy! You can pre-load coupons to the card for instant savings the next time you’re at the grocery store.

Also, Tom Thumb (and a lot of other grocer stores) offer 2-5X rewards points for gasoline by purchasing gift cards. We’ve not yet found this AS valuable – unless they’re doing an additional discount on gift cards – since we use Cardpool.com quite religiously, but it’s something on our radar nonetheless.

Use Cardpool.com
If you haven’t checked out Cardpool.com, then you should head on over there ASAP. We’ve spent a lot of money through them throughout this last year for a lot of our major projects and expenses, and we’ve saved TONS of money on items we were going to spend on anyways. The key (with this and with all gift card discounts) is to only purchase items you would normally buy! Don’t use it as a way to spend extra money when you’re at [insert store name here] if you weren’t going to spend the money anyways.

This site is a great way to stretch the value of your dollars too. Plus, if you got a gift card that you know you wouldn’t want to use, you can sell it to them and put the money to better use.

Aside from Home Depot gift cards, we typically purchase e-gift cards that we turn around and use within the same day for online purchases we’re already planning to make. It’s definitely an extra step and if you think you might be returning the items it can be a little annoying because then you will mostly receive your money back in the form of store credit, not ideal. Several of the retailers we shop with have more than a 6% discount on them and when you tack on other discounts and coupons you can find through sites like Retailmenot.com, maximizing online purchases is fast and can save really significant amounts.

Five smart ways to maximize your budget starting today is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.