Lower Interest Rates Do Not Mean it is Time to Refinance

Interest rates drop and homeowners with mortgages run out to get in on the action. A lower interest rate isn't always better. Yes, it may seem to save you money each month on your monthly mortgage payment, but there is more to consider than the interest rate alone to see your true savings.

Closing costs and fees
Even when you receive those attention grabbing postcards in the mail that promise a low interest rate of 4.875 percent and no closing costs, there are fees involved. If something seems too good to be true, it is. There are always fees associated with a mortgage transaction, so it's not about asking what the closing costs are. You want to ask what your total fees, charges and closing costs are for the transaction.

For example, my parents bought a new home in December 2008 using a VA loan. At least twice a week, they receive a postcard or letter in the mail from a VA mortgage lender telling them how low their interest rates are (usually in the 4 percent area), how they can skip two mortgage payments and pay nothing in closing costs.

I was there yesterday and saw one of these postcards. I was intrigued so I picked up the phone and called. With my dad's perfect credit score and veteran status, he can get an interest rate a little over 4 percent and he can skip two mortgage payments when he refinances. The savings per month works out to be approximately $331. It doesn't cost him anything out of pocket because they'll roll the $16,000 in costs right into the loan amount. I'm sure they will.

Yes, you saw that right. Their no closing cost option turned out to be $16,000. They didn't call them closing costs per se. They called them a VA fee, one point, one discount point, and miscellaneous title search and recording fees, but any way you spin it, it's $16,000.

Time in the home
It's not about the interest rate alone and it's not about the costs and fees alone. You also need to consider how long you expect to be in the home. If you expect to live in or own the home for less than four years, it is usually not beneficial to refinance because typically you won't recoup the costs and fees of refinancing to break even.


Break-even analysis
Your final decision should be made using a break-even analysis. This calculation allows you to consider your savings per month if you refinance and the costs and fees associated with the refinance. You can determine how long it will take you to recoup your costs or break even. If you plan on being in the home the same amount of time or longer than it takes you to break even, then it may be worth the cost of refinancing.

Break even = Fixed Costs / Variable Cost

In a mortgage situation, the fixed costs are the fees, charges and closing costs associated with refinancing. The variable cost is your monthly savings on your mortgage payment. When determining your monthly savings, make sure you are comparing apples to apples. If you currently pay principal, interest, taxes and insurance (PITI), make sure that the new payment also includes PITI.

In the example with my parents, the fixed costs are $16,000 and the variable cost is $331.

Break even = $16,000/331 = 48.33 months/12 = 4.02 years

Since they do not plan on being in the home for the next four years, it isn't worth it to them to "pay" $16,000 to save $331 per month, even though their interest rate would be almost two points lower than their current rate.

Before you refinance
Before you refinance, be sure to get all of the facts and do the math. It isn't always about getting a lower interest rate. It's also about the costs involved and the amount of time you plan on being in the home. Conduct your own break-even analysis and make sure you are making a decision to refinance for the right reasons.

5 Ways to Save on Food without Giving up Eating

There is no doubt that these are times to tighten your spending habits at the grocery store. You've had to cut back in every other area of your life, but starving isn't really an option. Being a wise shopper and cook is the perfect option for cutting the food bill without giving up food.

Here are five tips to help your tummy and your wallet stay full.

1. When on sale, buy in bulk. When an item you buy is on sale, stock up on it. For me, I do this when my local Publix has its buy one, get one free sale. Whether it's buy one, get one free or simply on sale, buy multiple items at bargain pricing and sock it away until you need it. Many items can be frozen for use at a later date, or have a long shelf-life. Be sure to check expiration dates so you don't end up throwing items away before you get a chance to use it.

2. Use everything you can. I learned this from my grandmother, who went through the Great Depression. She never threw anything away. If she cooked a ham, she used the ham bone to make split pea soup. You can even turn leftovers into entirely new meals. Be creative and find a way to use more and waste less.

3. Avoid prepared foods. Prepared foods are convenient, but they're also overpriced and aren't as healthy as freshly prepared foods. Avoid the prepared foods and you'll save money, and be healthier for it.

4. Stale bread doesn't belong in the trash. When your bread goes stale, make croutons. Cut the bread into cubes and bake in the oven for about 10 minutes at 300 degrees. Add them to a fresh salad for a side dish for lunch or dinner.

5. Plan your meals by the sale paper. Instead of planning your shopping list by what you want to make, plan your meals based on what's on sale. Take a few minutes to preview the sale paper for your local grocery store, and plan your meals around the sale items. This is a surefire way to make sure you never pay full price for anything again!

While you may have to cut back, you don't have to cut out eating altogether. Follow these five steps and you'll cut back your grocery store spending without cutting back on your food intake.

When Numbers Aren't Your Thing

The world is an interesting place because of diversity. If you're not mathematically inclined or numbers make your eyes roll back in your head, the beauty of it is that there are numbers experts that can help you.

In my past life as a mortgage and credit specialist for Merrill Lynch, I found great pride in helping clients achieve their financial goals. It was more than providing them with a mortgage to purchase a home. I worked closely with their financial advisor to create a plan that was beneficial to both the asset side and liability side of their balance sheet.

As a professional writer, I recently encountered a woman who can use her left brain and right brain. Maria Markham Thompson, CPA, CFA, provides accounting and tax services for writers, artists, and small businesses. Maria is also a fellow freelance financial writer. She shares her 25 years of financial services experience with those who may be mathematically challenged and relishes in her ability to explain numbers to her clients in plain English. Maria writes and creates business plans--putting together her creative side with her financial knowledge. She also helps individuals put together their personal financial plans, and even prepares taxes for her clients.

It got me to thinking how many people in this world can benefit from someone like Maria--especially in my world where I am surrounded by creatives!

The moral of the story is that you should stick to what you do best and turn to experts to help you with what they do best.

Have you accessed the equity in your home or business to invest in another vehicle?

I'm looking for individuals or businesses that have used the equity in their home or business for the purpose of making an investment that would gain them a greater return (than if it sat in the home or business).

Some of the equity investments may have been made to:

* Start a new business
* Invest in/buy real estate
* Invest in private mortgages
* Make home improvements or renovations
* Invest in a retirement plan/investment
* Buy another primary residence (before selling your existing one)
* Pay for college/education expenses
* Pay off debt
* Buy insurance
* Invest in stocks, bonds or mutual funds

You can contact me directly at kristie@studiokwriting.com.

Having a Mortgage Emergency: Find Help

It's no secret that the foreclosure rate is at an all time high and people are frantically searching for relief and help. Hope for Homeowners comes in the form of a government program that helps homeowners refinance at an affordable rate. Lenders around the country are offering this HUD backed program for borrowers having trouble making their current mortgage payment, but can afford to make payments on a HUD insured mortgage.

For more information on the program and to find a participating lender, visit the Hope for Homeowners program website.

Budget Buddies

Over the past week, I've shared some budgeting techniques with you. Since budgets are back in style, this means you're at the cutting edge of the money and finance world. And like working out is easier with a friend, so is budgeting.

Form a partnership with a friend or family member to share your budgeting tips and knowledge, and to hold each other accountable for your actions. It's also a great form of support. If a partnership isn't enough, consider forming a group. Meet once a week for coffee at a group member's home.

Change for the Good

Over the past few days we've been talking about why you need a budget, and keeping track of where your money is going--all in an effort to figure out how you can reach your goal. Now it's time to institute some changes in your spending habits to help you do just that.

1. Go line by line on your expense sheet. Highlight or somehow mark items that are not necessary. Is it necessary to spend $20 per week on coffee from you local coffee shop? What about the $30 trips to the DVD store? Probably not.

2. Once you slash out spending that isn't necessary, start to look for areas where you can cut back. For example, do you need a home phone with the complete package when everyone calls you on your cell phone, and you always call them using your cell phone too? You have 800 channels on TV, but only watch about a dozen of them? Is it time for a smaller package?

3. Trade in your credit and debit for cold hard cash. You probably wound up in credit card debt, or in an unknowing state of where your money is going because of credit and debit cards. Start using cash instead of credit and debit. That means if you don't have enough cash to buy it, then don't.

Now add up all of your savings and see how much money you have to put toward your goal.

Figure out Where Your Money Should be Going

You may have been shocked out how much money you were spending on certain aspects of your life. And maybe you don't know what you should be spending on certain areas to be shocked at how much your spending is over budget.

So here's how your spending should break down. And by the way, this is on your net income, not gross.

35% Housing
15% Transportation
15% Debt repayment
10% Savings
25% Clothing, travel, health care, entertainment, etc.

Next, we'll figure out how to make the necessary changes to your spending habits to reallocate the funds the ways they should be getting spent.

Where is My Money Going?

Yesterday, you answered the question of why you need a budget--setting your budgeting goal. With budgets, you have to know where you've been to get where you're going. Today, we're going to figure out where all of your money is going. You may be surprised what you discover!

There are a couple of different ways you can go with this step. I'll get you started, but figure out the best way for you.

The notebook method
Keep a small notebook with you at all times. Record every purchase you make or every bill you pay, no matter how small. Keep your transactions in your notebook for at least one month. At the end of the month, tally your costs and take a good look at what you're pending your money on.

Receipts, meet envelope
You can also gather your receipts from each purchase and place them in an envelope over the month. At the end of the month, you can sort the receipts by purchase type and do the math to see where you're spending your funds.

Automate it
Some credit card companies do it for you, but there are also programs you can use to download your credit card and bank statements. The program then categorizes your spending for you. Geezeo and Mint are two online programs that allow you to track your spending for free!

At the end of this exercise you'll have a much better handle on what you're spending your money on. Then, you can figure out how to make the necessary changes to reach your goal.

Budgets are Back in Style

Gone are the days when your friends and family make fun of you for being on a budget. It's a sign of the times that more and more individuals and families are creating budgets and sticking to them. Over the next week, I'll be covering various aspects of the budget.

So, let's get started.

The first step to bringing back to the budget is to set your goals.

Ask yourself, why do I need to budget? Is it because you're tired of living paycheck to paycheck? Is it because you're in credit card debt up to your ears? Is it because you recently lost your job and have to stretch your severance pay until you land another job? Are you trying to save for your child's college education?

The answer to this question is your goal. See, that wasn't so bad was it?

Tomorrow, figure out where your money is going.

Construction Costs on the Rise?

Many people think it's cheaper and more cost effective to remodel the home they have rather than building a new home from scratch. This may or may not be the case depending on the repairs you make.

According to the National Association of Home Builders, this is how construction costs have changed over the past 6 years:

Framing and Trusses: $27,887 vs. $34,600

Insulation: $2,387 vs. $3,471

Drywall: $8,047 vs. $11,185

Stairs: $863 vs. $1,674

Tiles and Carpets: $6,506 vs. $11,058

Plumbing $8,229 vs. $11,753

Siding: $6,411 vs. $12,476

Exterior Door: $1,143 vs. $2,080

Foundation: $10,512 vs. $15,249

Cabinets and Countertops: $6.568 vs. $12,477

Electrical Wiring: $5,011 vs. $8,457

Windows: $4,966 vs. $6,322

Roof Shingles: $3,941 vs. $7,070

Total Construction Cost: $151,671 vs. $219,051

Keeping Your Living Arrangements Status Quo in This Housing Market

The housing market these days is under pressure. Foreclosure rates are on the rise and those trying to sell a home are experiencing great competition. If you've decided to wait out the market living in the same house, should it remain status quo for you?

What should you do if you're staying put?
There are many reasons why you may be staying in your home. If you're keeping your current home, does that mean you can just sit back, hold on to your real estate asset, and time the market so you can sell when it recovers? Not necessarily.

Take these steps into consideration to better your situation when it is time to sell.
1. Fix it, repair it. Take the time to make repairs and fix items that are broken in your home while you have a chance. This helps you to avoid scrambling later when it is time to sell.

2. Renovate. Some homes need remodeling from top to bottom while others need to be updated or spruced up a bit. It may mean applying a fresh coat of paint to each room, updating appliances or putting in a new floor--carpet, tile, or wood. Take the time to make these changes now. You can spread out the cost and time, so you don't have to do it all at once.

3. Make your home energy efficient. The demand for green and energy efficient homes is on the rise. Make your home more cost efficient for you, and eventually the new owner by making energy updates and upgrades such as replacing insulation, adding energy efficient light fixtures, and sealing cracks in window and door jambs.

It's a buyer's market, so this may not be the right time for you to sell. If you're staying put, try these three tactics to increase your odds for selling when the time comes.