I’ve never been much of a risk-taker, I tend to gravitate toward tried and true methods for improving my personal financial situation. I have an emergency fund that has a comfortable cushion of 12 months of savings built up. I invest both pre-tax and post-tax money in retirement funds and brokerage accounts, but I earn just a little more than the rate of inflation due to the mix of equities and bonds I employ. Lastly, rates are at record lows, and refinancing seems to be a great idea, but the question is what rate makes sense?
There are so many types of mortgages and refinances that are out there, it’s best that you educate yourself on all the options and choose what’s best for you. I’ve successfully purchased two homes in my life, and refinanced a total of four times now. I know, four times seems like a crazy amount. It’s really just a product of the times we are in, rates keeping creeping lower by the month, it would be insane not to take advantage of it. I learned early on that the average homeowner stays in his first loan on average for about 7 years. That means that every borrower either sells or refinances his house within the first 7 years. Many leave their houses for better school districts, for work obligations, or simply because the size of their home no longer fits their family and lifestyle. This is precisely why you don’t need to buy up “points” to artificially lower your rate. Buying points is akin to gambling with the amount of time you may or may not spend in your house, as it takes several years to breakeven.
Do you want to know what else is akin to gambling? Taking out a variable rate loan rather than a fixed rate loan. Variable rates are just that, variable. They can change based on a certain term period and where the rates are at the end of that term. Since nobody can predict the future I liken this approach to gambling with your finances. Stick with something more secure, like Newcastle Permanent fixed rate home loans. Sure you can save more money and pay less interest with a shorter-term variable rate loan, but then again you could also lose money in the long run. When the term of your loan is up you are stuck either selling the houses or refinancing into whatever rates are available at that time. That’s part of the reason we saw the bubble in the housing market. People were taking our either low interest or no interest loans for short time periods and expecting the housing market to keep appreciating in value. When that didn’t happen people realized they owed more on their homes than they were worth. Remember, there is no such thing as getting rich quick.