Big Brood

We’ve been thinking about refinancing our home to take advantage of lower interest rates. We missed the bottom which seemed hit at around 5.48% national average for a 30-year fixed-interest mortgage near the end of January. Today’s rate of 6.04% would still be OK for us as we’re currently at 6.8% (on one loan, we have another loan which was a dumb mistake that I’ll explain later.) The question, is: Is this the right time? The answer for us appears to be a definite “probably” (how’s that for hedging!)

With fed discount rate cuts, our first thought was to refi now! But, if you’ve been watching the trends you see that mortgage rates actually went up after the last Fed rate cut. So, I dug in a little deeper and found more information.

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Well, my Goosey mentioned our 10 year old car for which we still have a loan. She didn’t want to go into an explanation, but I will. This car was our first foray into mini vans. It served well enough for its time but is starting to really give out on us at an accelerating rate. Here’s how we did. Don’t try this at home.

1. Buy new Jeep Cherokee that you love and you think will grow with you well. When you do buy it, pay too much and don’t negotiate with the dealer.
2. Have a second child and discover that it is getting really packed inside the backseat. Discover that you can’t haul nearly as much stuff as you’d like.
3. Trade in your nice Jeep Cherokee for a 2 year old fancy minivan. Again, don’t really negotiate except to ask for slightly lower monthly payments. Make sure to get the 5 year loan. Oh yea, since you’re a little upside down on the Jeep, just add that amount on top of the loan. Boy, that dealer sure is helpful!
4. Run the minivan for a couple of years, then decide you’d like even lower monthly payments. Refinance it at a much lower monthly payment, fully intending to make extra payments. Oh yea, get another 5 year loan. Then your required payments are REALLY low.
5. Don’t make the extra payments.
6. Fast-forward 4 more years. You’re still paying for that car. You hate that car. That car is falling apart, but you’re so upside down on that car that you can’t get rid of it without losing your shirt. Hate car. Hate it! We hates it! It burns! It burns……!

Then….

1. Get tired of paying for the car and finally accelerate payments.
2. Save a whopping $0.03 in interest by paying it off early.

Many of these decisions we made thinking that we were doing the right thing. We really DID need to lower our payments because of lower income. But, I’m still in that car!

Here are some things that someone who doesn’t love servitude to rust buckets might do:

1. Buy used! Most of the depreciation for a car happens in the first year or two (think 20-40% of the original value).
2. Negotiate! I plan to post on this more later, but negotiation is great to save you money.
3. Pay cash! Yes, it can be done. We’ll discuss that in later posts.
4. Make your extra payments automatic. Some companies will make this difficult but you should be able to do it in some way. Call them up and ask. Also be sure to ask if there are any prepayment penalties.