Wednesday, December 21, 2011

Spend money to save money - part 7

Refinancing is a way to spend money but in the end to save money.  One thing no one tells you about refinancing your mortgage is that there is a cost to it.  All people talk about is the new, lower rate that they are getting.  Be prepared to have "settlement charges".  Last year, we inquired about refinancing at a local credit union.  The process will take some calls and be prepared to answer some questions.  They will ask you what, if any, debt you have, how much you make, where you work, birth dates, address, phone numbers.  If you can lower your rate by a percentage point, I would go ahead and refinance.  Remember, the whole goal of owning a home is to own the home.  That is, to have no payments to anyone.  Otherwise you might as well rent your entire life.  So make it your goal to pay off the mortgage.  When you refinance for a lower rate it is also a great time to lower the years of the mortgage.  When we refinanced in 2010 we lowered our rate a full percentage point and we took the life of the loan from 30 years to 15 years.  Those 30 year mortgages will kill you.  They never should be allowed in the first place.  Thirty years is like forever and people can't ever see an end to it so they resign themselves to being debtors their entire lives.  It doesn't have to be that way.  When you refinance, the bank or credit union will give you a chance to roll the cost of refinancing into the loan.  You can do that because it will make the whole thing less painful.  However, do not borrow additional money at this time no matter how tempting this might be.  As I said, the goal is to have a paid for house.  The quicker you can do that the sooner you can start laying aside huge chunks of money into your savings and investments.

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