| Every mortgage or refinance needs a target; | | | | mortgage? |
| something larger we're trying to accomplish beyond | | | | Just focusing on the mortgage is fine-who doesn't |
| just buying/refinancing a home or investment property. | | | | want a lower home payment. But when we look at |
| The best loan isn't always the loan with the lowest | | | | the mortgage in context of the overall family |
| rate, but the loan that helps you move forward | | | | expenses we are really doing is improving your overall |
| financially. | | | | financial plan. This is what a financial planner truly |
| Here are a few "Refinance Rules" you may want to | | | | needs to do. And all financial planning begins on the |
| consider. | | | | mortgage level. Because when you are out of debt |
| These are rules aren't strict-rather they are just like | | | | you have more money to save, to invest, to build |
| the sites on a rifle...they help everyone get a focus. | | | | towards retirement. |
| Because a mortgage should not be an end in and of | | | | And it all this begins on the mortgage level. |
| itself, but a means to a bigger end. | | | | What's your current refinance goal? Maybe your |
| Top Refinance Rules... | | | | situation might be "Hey Mr. Mortgage guy, what loan do |
| #1) Eliminating Consumer Debt: (Non-tax deductible) | | | | you suggest that will help me retire at age 55." |
| #2) Have a Savings Cushion: Ideally 3-6 months in a | | | | Let's talk about Home Equity Loans: We recently |
| liquid interest-bearing account. | | | | helped a client get out of debt with a home equity loan. |
| After you close on a home loan, you'll need a savings | | | | They'll save over $900/month. That's $10,800 a year |
| cushion. They focus so much on the mortgage rate, | | | | they have in their checking accounts. Not theoretical |
| that they'll empty all their savings to buy a home. Not a | | | | money. Not the What Would Dave Ramsey Do |
| good idea! Tell me, does it matter if you get the lowest | | | | (WWDR) approach of "cancel your cable and take |
| rates in Texas if you don't have $500 left to your | | | | the difference and put it into a municipal bond so you |
| name after closing? | | | | can make 1.3% over 10 years" But real money. |
| This is one reason why people should consider 95% | | | | Financial planning truly begins on the mortgage level. |
| loans. There's a myth out there that most people with | | | | Home Equity Loans: If you are going to refinance, at |
| good credit put 20% down--but most the 80-90-95% | | | | least look at something larger than the mortgage rate. |
| home loan clients are PhDs, teachers, physicians, | | | | For example, let's say you're current mortgage is 7% |
| engineers, Aggies, OU Sooners, who could easily put | | | | and rates are at 5.75%. You'd really like to refinance |
| 5-10% down. They choose to keep mortgage down | | | | and lower your bills. Let's say, if you took advantage of |
| payments to a minimum so they can put more money | | | | the 5.75% you'd save $100/month. Hey-that's progress! |
| elsewhere, like money markets, buying investment | | | | But what if you took some equity out of your home |
| homes, etc. | | | | and paid most/all of your non-tax deductible debt off in |
| Refinance Rule #3) Pay of home before 30 years | | | | the process? This probably would save you |
| and save a ton in interest.....you shouldn't pay for your | | | | $500-$700 month. Then you could take some of the |
| house 3 times. | | | | savings and apply it to your principal and pay a 30 |
| Go with the loan that moves you forward financially. If | | | | year mortgage off in 15-20 years. That is a very |
| this is a 15 year refinance-great. But if you have debt | | | | important step-and here is where I agree with Dave |
| and you're paying lots of money out each month-your | | | | Ramsey-you must have a budget because without |
| best bet is going with a home equity loan. The fewer | | | | this you'll get back into debt. |
| bills you have the better. | | | | Refinancing to get a low rate is good. The second |
| Mortgage rates go up and go down...so chasing a | | | | approach moves you to an entirely different financial |
| magical rate is kinda stressful. And waiting for the | | | | situation. |
| market to come your way takes you out of control of | | | | I mean, you're going to have closing costs anyway. |
| your finances. I mean, if rates are 7% and you're | | | | Why not go with a home loan that will move you |
| waiting on rates in the 4% range, you may be waiting | | | | forward financially vs. one that will just save you $100. |
| a few years. | | | | Some people think home equity loans are not good. |
| Have a strategy when going into the home loan or | | | | Gurus like Dave Ramsey don't encourage them. But if |
| refinance- and "use" the mortgage to execute your | | | | the numbers make sense-who's to argue? Is Dave |
| game plan. Mortgages are just tools. And choosing the | | | | Ramsey going to pay your bills for you? |
| right tool is very important. | | | | Dave teaches some great time-tested fundamental |
| Ask yourself: "Is there a better way to approach a | | | | principles. Most of which I agree with. Budgeting, saving, |
| home loan or refinance than just trying to get some | | | | low debt...but the more I listen to his show the more I |
| "magical low rate." Naturally, rate is important, closing | | | | see his main goal is this: " Get to zero." |
| costs are too, but let's try to blend two objectives. The | | | | "Don't owe anyone anything"...which is good. He even |
| more things you can accomplish with your refinance | | | | throws some Bible verses around. Who could disagree |
| the better you will be and the better ROI you get from | | | | with a simplistic message of getting to zero? |
| your closing costs. | | | | I don't think you win the financial game by getting to |
| For most people, they only aim at the mortgage rate. | | | | zero. I believe you get there when you have money. |
| So what do mortgage companies do...they give low | | | | When you have assets. And anyone who takes a |
| rates to these people. But With PMI... | | | | black and white approach to anything, I tend to |
| PMI: Consider this, if your rate is 6.00% and the house | | | | disagree with. Few things in life are 100%-and money is |
| payment is $1000. But your PMI is $200 month do you | | | | no different. If you called Dave's show and said "Hey I |
| still think your rate is 6% if you're paying $1200/month? | | | | make good money but I my retirement is iffy at best. I |
| Why don't more people avoid PMI-it's almost always a | | | | only have 30K in retirement and I'm 50 years old." He's |
| waste of money. You guessed it. Home loans that are | | | | likely to suggest you need to budget more, maybe cut |
| 80/20 or 80/10 or 80/15s have higher rates because | | | | out some vacations and buy another book of his. |
| these are riskier than single loans. | | | | If you called, me and you'd didn't have any goals of |
| And did you know mortgage people make more | | | | your own-I'd probably suggest the things that Dave |
| money on single loans vs. 80/20s or 80/15/5 loans? | | | | suggest- but I'd encourage you to buy investment |
| Or take 95% home loans...these rates are higher than | | | | properties or some other growth vehicle. If your IRA is |
| 20% down. But sometimes people want to keep their | | | | growing at 1-2% and we find some properties that are |
| money vs putting it towards a home. Maybe they are | | | | growing at 3-5-7% I'd might even encourage you to |
| self-employed and can get a greater return on this | | | | put more of your savings towards a higher yield |
| money elsewhere or maybe they can take the 5% | | | | vehicle like established real estate. No specs stuff. |
| down and eliminate all their consumer debt. Each | | | | Then, with the right planning and discipline, you could |
| person is different and has different goals and | | | | retire with several properties that have equity. |
| incomes. | | | | Then, with these assets you could sell them or keep |
| So how do we actually blend these goals of low rates | | | | them and enjoy passive income during your retirement |
| with financial planning? What do the "Refinance rules" | | | | years. Whichever approach you take-you'll need to get |
| look like in real life. | | | | some points on the board because "getting to zero" is |
| Someone calls and says "I want to lower my rate. I | | | | no long term game plan. Most people need to take the |
| want to lower monthly bills." Okay, great. That's pretty | | | | Dave Ramsey PLUS perspective.... Take the |
| general. Sorta like most high school boys want a nice | | | | budgeting, savings, getting out of debt time-tested |
| car and a pretty girlfriend. Who doesn't want this? | | | | fundamentals--PLUS buying and keeping assets and |
| But what if we took at bigger approach to things and | | | | starting businesses, even if you have to incur debt. |
| blended your goals for a refinance rule and added | | | | Because getting to zero should not be the goal and |
| "eliminate consumer debt" to the equation. What loan | | | | every mortgage should have a specific purpose to |
| would we choose if the objective was to reduce your | | | | move you forward financially. |
| family's overall monthly expenses-not just the | | | | |