Calculator with wooden house and coins stack and pen on wood table. Property investment and house mortgage financial concept

It seems like an obvious question, however, it is often overlooked.  When considering a refinance are you in a good financial position?  Homeowners often wait until they are in a difficult position to begin making moves.  That could be too late for lenders and yourself!

Smart Money Questions You Should be Asking:

  • Are my credit card balances above 30% of the available credit line?  For example, if you have a $5,000 credit card, do you owe more than $1500.00?  

Smart Money Says it is time to take action.

  • Do you have student loans you are making minimum payments on with more than 5 years remaining?

Smart Money Says it is time to take action.

  • Do you have auto loans in terms of 72 or 84 months?  Are payments becoming unmanageable?

Smart Money Says it is time to take action.

  • Is your business running short on cash flow?  Your receivables are running longer than 90 days?  Considering an expensive loan from Kabbage?

Smart Money Says it is time to take action.

  • Are you hearing rumblings or restructuring at work? The potential loss of time and income in the coming quarter or quarters?

Smart Money Says it is time to take action.

If you fit any of the above scenarios or dozens of other potential financial pitfalls, the time to take action is now, not until the event of the financial situation overwhelms you.

Sit with a professional and talk about your financial situation.  Have an unbiased 3rd party look at your financial picture from a number perspective.  It will be the best smart money move you make!

House Refinance

There is a popular narrative being floated in the financial world that if you refinance your mortgage, you are digging a deeper hole!  That starting all over again, you are in fact going backward.  However, is this really the case?

There are many factors to consider in a refinance of a mortgage.  Let’s consider a few questions:

  • Have you been making payments on a current credit card or credit cards only to see the balance stay the same or increase?
  • Have you recently or within the last 18 months did balance transfers from multiple credit cards to one?
  • Do you have a home equity line of credit or a home equity installment loan?
  • Do you have more than 2 years remaining on student loans?
  • Do you have multiple no payments finance deals getting ready to expire in 12 months?
  • Do you expect to move in the next 16 months?
  • Is this your “forever” home?

Now, did you answer yes to 3 of any of the above questions?  If so, then let’s talk about a refinance.  Before we do, let’s talk about the appreciation of your home.  Most homes in the United States appreciate in value year over year.  In fact, the nationwide average is 3% to 5% yearly.  This is a conservative estimate, especially in today’s real estate market.

If you have been in your home for 2 years now, let’s consider a scenario:

The value of your home in August 2018 was $300,000.

The value of your home (as an estimate) in August 2020 is approximately $330,750.

You have built equity and that has nothing to do with your mortgage.  In essence, you are $30,000 to the plus!  You won’t be going backward.

Now let’s consider debt:

$15,000 in credit card debt: average monthly payment is approximately $450.00 per month.

$45,000 in student loan debt: the average monthly payment is $460.00

$275,000 mortgage payment for principal and interest and is approximately $1196.00 monthly.

Just these three items come to $2100.00.  Plus, $910.00 per month may not be tax deductible.  However, for this post, let’s not complicate that calculation.

If you refinanced right now at today’s current rate, assuming good credit: $1383.00  Your savings in real money is almost $850.00 a month!  $850.00 a month. This is over $10,000 a year in real cash in your pocket.

Let us be clear, this is not an offer for a mortgage.  The calculations above are for illustration purposes only.  A mortgage professional will assist in helping you understand rates, terms, credit scenarios, and appraisals.  However, with that being said: are you starting over?

Imagine what your finances would like with an additional infusion of cash at a level of $600, $800 or $1000 dollars monthly!  It would be significant and would have an impact. You are not starting over.  In fact, in doing a refinance the proper way, you will be light years ahead in debt, savings, and the elimination of massive interest charges.  It’s time to meet with a mortgage pro!

6739053 - luxury home in suburbs with triple garage

November 3rd, 2020.  It is a date that we are reminded of on a daily basis.  No matter the side of the aisle you are on, you may be asking “Should I wait till after the election to refinance?”  Now as a matter of what the markets may or may not do, we will leave that to the political pundits and economists.  Let’s talk about you.

Waiting Till After the Election to Refinance is a Logical Question.

However, what you are doing here is trying to time the mortgage market.  Or, you are trying to time interest rates.  Either of which is truly a losing strategy.  In fact, in past posts, you will see clearly that interest rates may be the most irrelevant piece of your mortgage transaction.  

Some have spent a lifetime analyzing and evaluating the timing of how and when interest rates may or may not move.  The factors that go into the Federal Reserve making a rate move are far too lengthy and complex for this post.  Then how banks will react to the news is a matter entirely separate and unto itself.  If you would like a sneak peek into what influences the Fed in monetary policy, click here: Federal Reserve.

So, Should I Wait Till After the Election to Refinance?

The short and simplest answer is absolutely not.  Why run the risk?  The election is over 3 months away.  Do you want to continue paying a high rate credit card for another 3 months? Continue to pay PMI for another 3 months?  Put off saving for your retirement for another 3 months, or put off starting your business for another 3 months?  Lose out on $500 or even $1000 or more in monthly payment savings for another 3 months?  

These are examples of the risks you run in hoping to save a fractional percentage more on your interest rate.  You will be losing real dollars, real savings, and real financial opportunity.  Instead of timing, let’s talk about the best possible steps in moving forward on a refinance for you.  Click here and work some numbers, your numbers and the difference a refinance today will make.

Classic american house exterior with garage and driveway

There is a question running rampant through the mortgage industry right now.  Is there a downside to refinancing multiple times?  The short answer is no!  However, let’s dive into some details and questions.

Question #1: “When do you plan on moving?  Within the next 12 months?”

Answer:  If you are planning on moving in 12 months or less, you may not recoup any of the closing costs (if there are any) in time to make the refinance worth doing.

Question #2: Are you paying high-interest rate credit cards?”

Answer:  If you are holding more than $10,000 dollars on a high-interest credit card, yes it makes sense to do a refinance.  Here is a fact: If you have a credit card at $10,000 and you make the minimum-only payments, it will take you 256 months to pay off, plus you will pay double!! That’s assuming you never borrow another dime on that card — even if you did a clean sweep of credit cards in your past refinance.

Is There a Downside to Refinancing Multiple Times?

The question that always needs to be answered anytime you do a refinance is, “What goal am I accomplishing?”  If there is a financial goal that cannot be achieved without a refinance, then do it.  If you can better a debt situation, then do it.  If you can fully fund a savings strategy, then do it.

In most cases, 90% of the time you will never find money at an interest this low, and where the interest can be tax-deductible.  The cost of money in your home is so much cheaper than you could ever get on a personal loan, credit card, or 401k loan.  Again, focus less on how times you have refinanced.  Focus less on the “terms.”  Instead, focus on the question “What am I accomplishing?” 

Is There a Downside to Refinancing Multiple Times?

Let’s put a financial roadmap together.  Does a refinance make sense at this time?  How can we help achieve that financial goal?  What terms might make sense?  Let’s talk.  There is no downside in refinancing multiple times, as long as you hit a financial goal!

Managing Debt

If 2020 has taught us anything, even the most “secure” companies and industries are laying people off.  Those left behind regardless of position have been asked to do 2x or 3x as much with the same compensation.  Maybe now, you have the itch to do your own thing!

What is Considered Smart Debt, in Starting a Business?

Debt without question is a natural course of doing business or being an entrepreneur.  Just like our personal lives, there is good debt vs. bad debt.  Let’s break it down:

  1. Credit card balances and cash advances.  No, never.
  2. Kabbage.  This service will lend based on accounts receivable.  High lengthy costs.
  3. Factoring.  Same concept as above, but even more expensive.
  4. Loan against 401k.  No, no, no.  Did we mention NO!
  5. Title loan on your car.  32% interest (varying by state) is a no-win situation.
  6. Borrowing from friends and family.  Only a good idea if you never want to talk with them again.
  7. SBA loan.  Sounds simple on paper.  In reality, it is very difficult to get.  You have to not “need” the loan to get it.

The above are perfect examples, and yet still more exist. Another risk is using the wrong assets to start your business.

Good debt, or smart debt, is about managing  your risk and money.

It is about taking the pressure off your business to have the ability to pay you immediately.  It allows you to have a low-interest rate and a long term that can be tax-deductible.  Good debt?  That is your home.

People would say never put your home on the line!  Well, the reality is your home is always on the line.  Whether you utilize smart debt, good debt, or refinance.  

Here are a couple of ways you can utilize a refinance:

  1. Your ability to pay off all your debt to a single payment.  Savings of a hundred, maybe even a thousand plus per month.
  2. Securing your best asset (your home) to the lowest possible payment with cash out!
  3. Keep your cash in the bank.  Let’s say you have $40,000 in savings and $40,000 in available equity.  Cash is king, keep that in your bank balance.  Borrow $40,000 in the form of a refinance to start and run your business.

Experts are experts.  There is smart risk vs. high risk.  There is smart debt vs. bad debt.  Refinancing your home for rate and term or cash out is the most powerful business tool you have (outside of yourself).  Use good debt smart debt to build your business and your dreams.

mortgage options

The American Dream has been and will always be the joys of homeownership.  Do you remember that feeling walking into your home for the very first time?  Do you remember the sights, smells, and the butterflies?  It is truly a moment in time that stands still for many!  Somewhere along the way, we made the financial side of it just like a Costco!

Costco and Mortgages

Speaking of Costco, did you know they do mortgages?  Yes, now the old joke can be “get 100 rolls of toilet paper and a mortgage along.”  We are not here to say that the people working for the mortgage arm of the company aren’t qualified.  However, this fits the narrative of the industry today for consumers.  

Costco: “One Size Fits All.”

Somewhere along the way over the past 15 years, mortgages have to turn into this one-size-fits-all scenario.  What is the difference in toilet paper or paper towels?  Well, that is the feeling with mortgages.  However, you shouldn’t have a one-size-fits-all solution. This applies to your finances, your retirement, your bills, your college aspirations for family, vacation homes, and investment property.  Can you achieve this in the chips aisle at Costco?  If you could, would you want to?

Costco vs. Customized Solutions

As an avid reader of our site (thank you) you know our feelings on the power of mortgages.  You know our feelings on what the right, customized refinance can do for you today and future.  How a mortgage should be a means to an end a financial tool:

  1. Freeing cash flow to fully fund a 401k or ESOP.
  2. Paying for major purchases such as college tuition or a wedding.
  3. Using the equity in your home to start a business.
  4. Allow you to become an Airbnb investor.
  5. To become 100% debt-free.
  6. Allow you to retire early.
  7. To provide in-home senior care for yourself or spouse.
  8. To help your kids start their adult life debt free.

While we don’t want to pick on Costco, we want people to truly understand the power that you hold in your home and its vehicle, the mortgage.  You need to treat it as such.  Mortgages and the meat section simply don’t mix.  Life decisions should not be taken lightly.  The expertise you require in achieving the ends of your means. That journey begins here.

 

Mortgages

Did you know years ago, there was a practice called a “Mortgage Burning Party?”  This was done typically around the age of retirement to celebrate you now owning your home free and clear.  So it begs the question, should you be mortgage free at retirement?

Refinance & Retirement Age, Quick Look!

First and this fact is undeniable:  Retirement savings on average falls short of needed living expenses by almost 42%.  So does it make sense to be mortgage free with those statistics?  The truth is, in retirement your most powerful financial tool will be your mortgage.  However, let’s be very clear about the strategy.

Are we speaking of a reverse mortgage?  No. Not that those services don’t have their place in financial portfolios for most Americans at retirement or nearing retirement age.  Let’s look at what cash can be used for.

Refinance & Retirement Age Just the Facts!

  • A refinance of your mortgage, with cashout enables you not to have to touch investments, retirement plans, or insurance policies.
  • A new and emerging issue for retired couples is long-term care.  If the pandemic has taught us anything, it would appear that nursing or assisted living facilities are not the alternative we once thought.  In-home care from a provider is the best care possible.
  • Be debt free otherwise.  Eliminating your credit cards, auto loans, costly timeshares, RV’s, secondary properties all makes perfect sense here.  Consolidate it into one payment.
  • Helping family.  The retirement generation is facing financial pressure from their kids, unlike any other generation.  Many are paying their kids’ bills.  A perfect strategy instead of sending them $2000 or $3000 a month would be to pay off their debt, such as their student loans.  It then becomes more manageable for you without having a serious impact on your cashflow.

Times have changed.  Financial models have changed.  Mortgage burning parties are definitely a thing of the past.  Bear in mind that you don’t want financial issues when you pass for your family.  However, you have worked hard your entire life to enjoy this next phase.  A mortgage is a good debt.  Debt that will give you financial freedom, unlike earlier in life.  You now have options.  Use them.  We have specialists standing by to help you understand this phase of your “mortgage life.”  Let’s put a plan together that makes sense to use this asset for the next 5, 10, 20, or even 30 years.

Saving money on mortgage

Do you have PMI or private mortgage insurance?  Do you know if you even have it on your mortgage?  Even so, what can you do if you are paying PMI?  Let’s break it down.

Private Mortgage Insurance

PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.

That is the clinical side.  What is the practical side to you, the homeowner? What is the cost of PMI?  PMI typically costs between 0.5% to 1% of the entire loan amount on an annual basis. That means you could pay as much as $1,000 a year—or $83.33 per month—on a $100,000 loan, assuming a 1% PMI fee.  Use that same $83.33 per every one hundred thousand you borrowed!  That is a huge amount of money.

Example: $300,000 = $250.00 a month. That goes to nothing. No equity, no balance reduction. Nothing. This was the cost of doing business!

Private Mortgage Insurance

Now that you understand it better, how do you get rid of it?  In most cases, you must be at an 80% LTV with your current lender.  On the surface you may say, well I have only had my mortgage for two years, and all the payments basically go to interest.  While that is true, you forget one key factor:

Market appreciation.  Although it may not seem like it if you watch the news, the real estate market is hot.  When it is a sellers market (meaning less inventory available), prices move up.  For every home that’s comparable to yours and sells in your neighborhood or area, it drives up the value of your home.

Now you may say “How does this help me, I don’t want to sell!” Nor should you.  However, by doing a refinance you can take advantage of lower rates, and YES in many cases you will be able to lose that PMI forever.

Imagine, refinancing right now, and saving $400 or $500 a month due to losing PMI and a lower rate?  Many people are not getting a $6,000 net raise in their job.  You can.  That is significant and real.

Now we know some of you out there are saying “I took the mortgage that didn’t have PMI.”  Great, that was offset by the lender at a higher rate.  So if you choose to refinance, although you are not having to eliminate PMI, guess what?  You are saving monthly in payment and overall on cost.

Your house doesn’t need two insurance policies.  One is homeowners insurance that protects you.  One is far more expensive and protects the bank.  Let’s take back the money in your monthly mortgage and put it to work for you!

Refinance Your Mortgage

Facts, people will refinance for hundreds of different reasons.  Why? Because it should never be a one-size-fits-all solution.  Consider this:

  1. People refinance to save 0.5%.  That makes sense to them.
  2. People refinance to pay off credit card bills.  That makes sense to them.
  3. People refinance to start a business.  That makes sense to them.
  4. People refinance to pay for college, for themselves or their children. That makes sense to them.

What makes sense to you?  Let’s talk about maybe the most overlooked reason to actually save money on your mortgage.

Not All Refinances are Created Equal!

You want to save the overall cost of what will be the biggest expense of your life: your mortgage.  So you are doing it for the interest rate then, right?  No, actually it is about the payment.  The single most important factor in the mortgage.

Basic math:  You are 2 years into a 30-year mortgage.  Your monthly payment is $1,122.00 per month.  So what will your mortgage cost you?  Well, you have 334 payments left at $1,122.00.  That equals $376,992.

Basic math on the refinance: You refinance your home by removing 8 years.  Let’s say you keep the same payment since rates are so low.  What would 8 years mean in real money, cash in your bank account?  8 x 12 = 96 payments.  96 x $1,122.00 = $107,712.

That is real money!  Imagine saving $107,712.00.  That has nothing to do with an interest rate.  That is real money staying in your bank account.

Not all refinances are created equal.  There are hundreds of reasons.  If saving over $100,000.00 is a good reason for you, then get started today!

Home photo

In part 1, we covered the basics.  In other words: we covered the normal reasons as to why you would refinance your home. Now, let’s jump into the tier two reasons.

6 Reasons to Refinance Your Home #4

Let’s pay this mortgage off:

In a previous post, we covered the ABC’s of the “cost” of your home.  In many cases, with rates being where they are, it’s now time to get serious about owning your home free and clear.  Making a simple change from 30 years to 15 years can save you tens of thousands, if not a hundred thousand plus!  

6 Reasons to Refinance Your Home #5

I want to utilize my equity:

FACT, equity can be the ultimate savings account.  For many homeowners, they don’t realize the access they have to the money they can use for major purchases or expenses.  In addition, your equity in a first mortgage possibly is the cheapest money you will ever have access to. 

Let’s dive into that:
If you have a major transaction coming up, such as college tuition, home healthcare, buying a second home, investment capital, wedding, or starting a business, people often consider other avenues for cash:

  • 401K
  • Credit Cards
  • Retirement money
  • Cashing out life insurance

Now, not to go down a rabbit hole of losing interest and value. The fact of the matter is you may have a negative tax consequence and you are also losing a potential tax deduction.  In future posts, we will break this down in more detail. But in many cases with the examples above, it is a lose-lose-lose situation.

The potential tax-deductible money in your home is the best way to acquire cash for major purchases.  Equity is buying power!

6 Reasons to Refinance Your Home #6

I want to pay off debt.

On the surface, you may think this is a no-brainer: that as a homeowner you have the ability to consolidate your debt and pay it off through a refinance of your mortgage.  In a recent survey done by Yahoo Finance, it showed only 22% of homeowners knew they could pay off their car, credit card, student loans, installment loans, personal loans, and more by refinancing their home.

Your home is a financial tool.  A refinance of your home can be utilized to achieve a number of financial goals.  These are only 6 examples of these goals; there are many, many more.  That is why the focus should not be on a rate, product, or service.  The focus should be on: what will my home refinance achieve?  Once you can answer that, the goal is accomplished.