Schmorgesborg

It’s been a while since I last posted.  It’s been a wild and crazy beginning to our summer!  We’ve had weddings, parties, emergency room visits (everyone is fine), and a crazy work schedule.  Over the past few weeks I’ve had a few thoughts I’ve wanted to write about but they’re not incredibly long topics.  So, I thought I might throw a few of them together here. 

The Change Bin

We have one of those Beefeater Gin change bin piggy bank type things that we continually throw change in.  It’s a nice little monetary surprise when you decide to sit down and count it.  I actually count the change when we’re ready because I can’t stand giving 9.8% to Coinstar.  Well, I’ll let Coinstar count the pennies; they can have 9.8% of them.  If your bank has a change counter they may let you use it for free.  Anyway, that change really adds up.  If you really want to let the money pile up in there, throw in a random dollar bill every now and then!

Rounding up

When I budget, I round up.  What do I mean by that?  If, my transportation monthly budget is $367, I might actually budget $370 or $375.  Over the course of the year over many budgeting categories, I’ve saved an extra few hundred dollars without realizing it!

Working out

Andrea and I work out.  We don’t belong to a gym because I’ve found it to be a money drain.  However, I’ve invested in adjustable weights, a pair of good running shoes and some home workout videos.  With a little discipline, working out at home saves us both time and money.  I don’t have to drive to a gym, get changed, get my workout in, change back into street clothes and drive home.  Before the kids get up or after they go to bed, we either go for a run, bang out a p90x workout or get in a quick 10 minute trainer workout.  It works for us!  Ya know...saving time and money as well as staying in shape!

Investing

Over the course of the last year or so I’ve been reading about, listening to podcasts and researching the topic of investing; so much so that I’m trying my hand at it outside of mutual funds.  I’ve actually done pretty well so far and I’ll keep you posted as to how I’m doing from time to time.  However, the market is not for everyone so I don’t suggest entering into this form of investing lightly and it should not be done before you are out of debt, have an emergency fund and saving for retirement. 

The Wagon

Everyone falls off the proverbial wagon!  The trick is getting back on.  For example, I wrote about how we were hit with car trouble and medical expenses in an earlier post.   Shit happens!  That’s why we have an emergency fund.  If you have to dip into the emergency fund, replenish it as quickly as possible and get back to the budget!  Don’t use the fact that you had to dip into the emergency fund as a reason to buy an “emergency” wardrobe!

Time To Refinance The Mortgage?

Have you checked out mortgage rates lately?  Wells Fargo has a 30 year fixed rate mortgage at 3.75% and a 15 year fixed rate mortgage at 2.875%!  2.875%!!!!  Are you kidding me?  I’m not saying you should run out and refinance right now but it is worth thinking about.  There are some factors you should consider first.  How long have you had your current mortgage?  How long do you plan to stay in the house?  How long will it take you to recoup the money you spend to refinance the mortgage?  Do you have a prepayment penalty?

There used to be a rule of thumb that said you shouldn’t refinance your home unless you could reduce the interest rate by at least 2%.  Then the rule of thumb changed to a reduction of at least 1%.  Now, the rule of thumb is you should consider refinancing if you will you stay in your home longer than it will take for you to recoup the cost of refinancing.  

If you took out a mortgage in May of 2006 for $200,000 at a rate of 5.5% you would owe $180,766.53 as of July 1^st, 2012.  If you were to refinance the balance of that mortgage today at 3.75% for 30 years your payment would go down $280 (from $1135 to $855).  It would take you approximately 14 months to pay off that refinance. 

Even better, if you took that same mortgage originally taken out in 2006 and refinanced it to a 15 year at 2.875%, your payment would go up $129, up to $1,264.  However, in those 14 months you would have paid $6,016 in interest as opposed to the $12,298!!!  That’s a savings of $6,282, making this refinance well worth the time, effort and initial cost! 

It doesn’t always make sense to refinance.  It may not make sense to refinance if:

• You plan to move within the next few years; a monthly savings of $100 at a cost of $4500 to refinance would not be justified. 

• You are on the backside of your current mortgage.  The majority of the interest paid on your mortgage is paid on the front end.

• You current mortgage has a prepayment penalty. Most prepayment penalties hit you with a penalty of 80% of six months interest (ouch!).  However, most expire after 5 years so check your documents!!

It may make sense to refinance if:

• You can reduce the term of your loan without increasing your payment beyond your means.  For example, you refinance to a 15 year mortgage from a mortgage with 23 years left.

• You could reduce your monthly payment substantially!

• If you are in an Adjustable Rate Mortgage (in that case, stop reading and call your bank to refinance to a fixed rate mortgage right now!)

You might consider going to an extra payment calculator like the one at http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx to determine if you could save yourself interest AND the cost of refinancing by just adding extra money to your payment.  A Do It Yourself refinance without the hassle of refinancing!

I’ve taken the liberty of running some numbers to quickly illustrate how much interest you could save by refinancing: 

• Interest paid on 30 year $200,000 mortgage at 6.00% is $231,676

• Interest paid on 30 year $200,000 mortgage at 5.00% is $186,511

• Interest paid on 30 year $200,000 mortgage at 3.75% is $133,443 

• Interest paid on a 15 year $200,000 mortgage at 2.875% is $46,450

With interest rates as low as they may ever get, take an hour or so to run some numbers.  It may save you tens of thousands of, even hundreds of thousands of dollars!