12

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.

Credit card tips: what you need to know

Six credit cards
KJ: Lists, lists, lists. There are so many out there, but we keep coming across some great ones that will help you get on solid financial footing. In this post, we focus on Bank Rate’s 10 can’t miss credit card tips. Go ahead, read the full article. You’ll be amazed what you can learn in just a few minutes that could save you hundreds – or even thousands – over time!

AJ: I LOVE when Kirby finds articles that teach me things I don’t know. As an avid credit card user there are a ton of great takeaways in this article and even better reminders of things that make us successful credit card carriers.

Here’s our key takeaways that we felt were worth sharing:

Pay your bill twice a month
This is recommended because it keeps your credit card utilization low – one of the key factors in calculating your credit score. The lower your utilization (say you have a balance of $1,000 on a $10,000 limit that has been extended to you), the better your score. An alternative would be to put less on your card and/or see about having a higher credit limit at your disposal. The latter could get you into serious trouble though if you don’t use a program like Mint.com to track your expenses and then pay your card in full each month, so beware.

Personally, I think this one more comes into affect when you are looking at purchasing a home, buying a car, etc. where your credit score is most front of mind and some type of long-term loan is on the line. Our preference to this is keeping higher credit amounts available to us, but just not using it.

Know card’s anti-skimming features
The regular mag-stripe on many credit cards could put you at potential risk with how easy someone can swipe your data. Try looking for credit cards that use the EMV technology that encrypts each and every transaction. Know how exposed you may be, and make changes as needed to help make sure you are protected.

Know your fraud protections
The Fair Credit Billing Act limits your liability with a credit card to $50 (and zero if it’s a data breach and only your credit card account information is stolen). Be sure to watch your expenses regularly and dispute any charges (maybe that waiter bumped up the tip a little more or a mysterious charge shows up). No one should be watching the transactions come across as closely as you!

Be aware that debit card liability limits often aren’t as great – and there are some significant differences in your potential liability. That’s why we prefer to use credit cards for all purchases and pay the balance in full each month.

Don’t pay for your cash back
Don’t get a rewards credit card and then not pay it in full each month. As we’ve written in the past, any amount you let carry over from month-to-month will very quickly eat into any benefits you thought you were getting!

Take stock of your wallet
This one’s pretty simple. Make a list of the cards you have in your wallet. Determine if any accounts need to be cancelled and closed. Check to see too that your spending pattern matches the best cards available today. Just because you opened a card years ago for rewards in a certain area doesn’t mean that it’s the best choice for your current lifestyle!

Be cognizant that closing a card can impact your average credit history and your available credit balance. Not that you shouldn’t do it, just be aware how it may impact your financing needs in the short-term if there is something on the horizon (say a move and new home purchase).

AJ: I am terrible at paying attention to what’s in my wallet. I’ve never lost a card (knock on wood), but things in my wallet are all kinds of expired, closed or invalid. Everything from insurance cards, benefits cards and credit cards, so thankfully Kirby is the king of maximizing credit card benefits in our house so he keeps us in the know on how to maximize our spending. All I have to do is remember which card I’m supposed to use on gas and groceries versus other expenses this month and we’re set!

Know what car rental insurance to take
Read the fine print on your cards! Many of your cards may cover rental accidents and damage, so don’t pony up for something you don’t need. Each card is different with what they cover, what deductible there may be, and whether international travel is covered, so be sure you know the stipulations.

AJ: This is completely new information to me! I love learning new things!

Know how to dispute a purchase
Be sure to check how to file a dispute with your credit card company if the goods and services aren’t up to snuff. Don’t avoid conflict in this area. It’s your money, so don’t let a retailer pull one over on you if you’re too timid to fight it and something was legitimately wrong (read damaged or incorrect product or price). Try to resolve it with the retailer first, and if it isn’t resolved, then work with the credit card company as needed.

    What credit card tips would you add to the list?
    Share with us your credit card must-knows.

Image courtesy of vectorolie / FreeDigitalPhotos.net.

Credit card tips: what you need to 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.

Six credit card guardrails to follow

KJ: A few months ago we posted about ways to use credit cards to your advantage and what the credit card companies don’t want you to know. This post takes a slightly different spin to focus on six credit card guardrails to commit to:

Avoid a balance
KJ: Credit card companies want you to carry a balance from month to month since that is their ‘cash cow.’ With interest rates so egregious (typically 16+%), carrying any balance can make it all that more difficult to get back on the right track. It’s not realistic to make 16% on your investments, so why give that option to the credit card companies?
AJ: This is credit card ownership 101. If you HAVE to carry a balance from one month to the next, do so with an achievable, manageable plan in place prior to doing so. Prior to Kirby and I marrying, there were some months where I needed new shoes for work because my current pair was literally falling apart and couldn’t wait to buy them until I had enough money in my checking account, so I put them on a credit card. I never allowed myself to carry the balance more than one month from the date in which I added the purchase to the card. Needing new shoes shouldn’t open a gateway to excessive spending.

Avoid teaser interest rates and gimmick rewards
KJ: Holding a card for a long period of time is good for your credit, so take the time to sit down and evaluate what the card’s benefits are beyond the initial term. Often, when you ‘lift the hood’ you will find it isn’t the great product that first appealed to you. One such example are department store and merchant specific cards: they are often not worth the hassle of the card. You often get a one-time discount and nominal rewards, plus it’s more cumbersome to keep track of yet another card with yet another due date. As such, we avoid most of these like the plague (with the exception of our Banana Republic card). It has better rewards than our main rewards credit card, and it gets great discounts that I get to use on products I was already going to buy. So far, it’s the only one of its kind we’ve found…
AJ: Most people we know would agree that it’s horrifying how much credit an unemployed college student can qualify for. Just because you’re not in college anymore does not mean that the credit card offers are any more reasonable than they used to do. Most college kids just plan to buy beer and food, you’re talking about major purchase with serious long-term ramifications if handled improperly. Checkout Bankrate.com if you’re looking for a card.

Evaluate annual fees
KJ: My experience has been that annual fees are often not worth the rewards. You find yourself stretching to take advantage of the reward…the opposite of what you should do! There are so many credit cards available with no fee and with rewards that you can typically find a card that suits your needs while avoiding the fee. Take the time to analyze what you would save compared to another card that may have less attractive interest rates or rewards. If you don’t know what you’re spending, then start by building a budget.

Know thyself
KJ: If you have trouble with credit cards, then be honest with yourself and do not apply for them, or at a minimum only keep one on file. The potential credit score benefits of having more cards coupled with low to no balance seldom outweighs the interest, penalties, and headache that it can bring if it gets out of control and you build up a balance. In a culture of overindulgence, it’s easy to binge on credit. Making a purchase in today’s world without credit is like telling a person with a food addiction to avoid food. It may not be an all or nothing conversation. It may take a lot of time and struggle, but learning to coexist with credit is a powerful discipline…especially if you can turn that struggle into triumph by getting rewards on purchases you were already planning to make. That will surely make your wallet happier!

Know your wallet
AJ: Make sure that you know what credit cards you have. If you can’t immediately identify how many credits cards you have and with what company, it might be time to evaluate your ability to keep a credit card at all.

Learn from your mistakes
AJ: As you consider your long-term goals, consider the damage that debt can do to those possibilities. I recently heard a woman in her 50s tell a story about how credit cards from years ago have continued to prevent her from purchasing a home at all because she cannot qualify for any kind of loan at any level. How devastating! To be able to afford monthly payments on something that would improve your lifestyle but not be able to receive the initial capital necessary to take that step based on mistakes you made years ago is truly life-changing. Fortunately, bad credit by law has a limitation on how long it can stay on your credit report (seven years from the last date of activity, but potentially up to ten years), so it won’t haunt you forever, but it can surely drag you down for years!

    Have you found a card that is worth the annual fee?
    Tell us about your credit card woes and struggles. What helped you break free?
    What are the credit card rules you live by?

Six credit card guardrails to follow 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.

Paying down debt

KJ: If you are working on paying down your debts to get on the right track to be financially secure, then there are a plethora of resources out there on how to pay down debt. What should you do, where do you start, how do you succeed?

There are a lot of conflicting rules on whether you pay down your lowest balance first (the Dave Ramsey ‘snowball’ method) or pay down your card with the higher interest rate. Like most recommendations, I say: it depends. Sometimes it’s not just a matter of simple calculations when you throw in the curve ball of personal finances and spending behaviors.

Method One: Start with the highest interest
The method that saves you the most amount of interest over time is to pay down the card (or debt) with the highest interest first. This method works best for people who can easily focus on the long-term and are apt not to add to their cards. Sure this may be better for your wallet, but you often have little success if you don’t see the fruits of your labor paying off – especially if you have a large card with a large balance and a high rate that could take months or years to chip away at.

Method Two: Start with the lowest balance
Your debt with the highest interest rate may have a higher balance and thus may take longer to pay down, so you may get frustrated with the progress (or lack thereof) if it takes “too long.” For this reason, Dave Ramsey’s ‘snowball’ effect involves paying down the lowest balance first, then continuing to use the payments to pay the next highest, and so on and so forth. This particular system can be a great way to see results fast, so you can see the fruits of your labor sooner. Hey, I paid off two cards already, let’s keep going! And sometimes, this emotional ‘buy in’ that it helps you accomplish can be far more powerful to get you to consistently pay more and more down on the debts as you can, so you ultimately work your way to the highest balance and can pay it down quicker than you had thought possible! Say you had the following scenario:

    $3,000 credit card with $125 minimum monthly payment
    $2,000 credit card with $75 minimum monthly payment
    $500 credit card with $25 minimum monthly payment

You would start by making the minimum monthly payments to each of the three cards and add all extra contributions toward the $500 card. Once that one is paid off, then you apply any extra payment and that $25 minimum toward the $2,000 card until it is paid off, and so on and so forth up until the $3,000 card is paid off. Then, once complete, start building back up your savings and get back on track, so you can avoid building up debt again in the future!

AJ: I personally hate paying interest on anything. In an ideal scenario, you avoid putting yourself into multiple situations where you owe someone else interest, but if you do need to live on borrowed money and time temporarily, do your research. Ensure that you have investigated all of your credit card options, mortgage options, and car loan options. Consider refinancing opportunities and additional ways to help you minimize the amount of interest you are paying that makes someone else wealthy.

The good thing is…once you pay down your debt, if you continue with your behaviors and direct the amount you previously focused on debt payments to saving, then you won’t have to think about or worry about this issue again! Invest in a software program like Quicken Deluxe 2013. Your wallet will thank you and you’ll help support us a little too :) If you prefer the free method, you might try Ready For Zero.com. I don’t have personal experience with this site, but I would love to hear your feedback!

    Have you paid down significant amounts of debt in the past?
    What method helped you through it?
    If you had it to do over again, what would you do differently?

Paying down debt 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.

Don’t be afraid to ask for help

A sea of debt

AJ: Our nation’s debt is a constant source of anger for Americans regardless of political party. So why do so many individuals think it makes sense to take on enormous amounts of personal debt?

Everyone wants to think that they’re unique, but the reality is that most people struggle at some point or another. You absolutely cannot anticipate and plan for everything that comes up, but you can choose how you address the setback.

Don’t buy a car that costs more than you make in a year. Don’t spend more on eating out during the weekend than you make in a week. Don’t go to Vegas to take a break from your life before starting your child’s college fund. It’s all obvious, but in a moment of stress or excitement people seem to lose the ability to make rational choices, choosing instead to make small purchases on credit that ultimately cost significantly more in the long run.

It’s easy to get behind

It’s really easy to get behind, especially in relationships where communication isn’t consistent, but make a plan to dig yourself out quickly. If you’re fully extended each month and an over and above expense comes up, find another source of income, even if it’s temporary.

If you let $1,500 sit on a credit card with an interest rate of 15% and only make the minimum payment (not adding any purchases…), after about 2 years you will end up paying almost $3,000! That takes your cost from about $63/mo to about $125/mo.

Seek help

I don’t know many people who would be too proud to ask a chef about how to use a certain ingredient in a recipe, so it makes no sense to me why anyone would be too proud to ask for help with their finances. Where did this idea of secrecy around money come from? If you are in trouble and need help, ask. Everyone pulls from different experiences, and you don’t have to be a financial advisor to have great tips on living a reasonable lifestyle.

Many financial advisors charge 1% of assets under management to provide you with financial guidance. Take the time to at least have a conversation with someone who is trained to help people invest wisely.

Change can be good

KJ: What your parents’ parents did to save might not be what you should do. In our rapidly changing landscape, consider seeking a financial consultant with the know-how of today’s world.

When was the last time you got an illness and just said ‘it’s okay, I can take care of that in a couple months.” No! You address the ailment as it arises. Putting it off to address at a later time only makes the problem worse.

Since so many products didn’t exist decades ago, why think what worked then will work now? The concepts of a mutual fund, ETF, hedge fund, 401(k), 403(b), IRA, SEP, SIMPLE, HSA, MSA, and FSA have become alphabet soup! It is important now more than ever to seek a competent professional who can walk you through your goals, investments, and financial picture, and can help update all areas periodically given the constantly evolving financial industry. Life isn’t going to sit on the sidelines and wait for you to figure things out: you have to go figure life out, so it doesn’t leave you in the dust.

No one said it would be easy

It can be a challenge to open up about your finances with someone else. As Americans, it’s so much engrained in our culture to not speak about money and to keep that behind closed doors. No one said working through problems is going to be easy, but it’s not something most people are prepared to do on their own – they need a great support system. Just like losing weight or trying to achieve a goal, you need to know where you stand and where you are headed (Budgeting: a very good place to start). With the credit binge that the U.S. has had for the last 30 years (consumers, corporations, and the entire country), it hasn’t been easy cleaning it up these past four years (we have a long ways to go), but we can get there if we put our minds to it! It starts with you!

Don't be afraid to ask for help 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.

12