Speaker 1: Welcome to How to Money. I'm Joel and I am Matt,
Speaker 1: and today we are asking the question to refi or
Speaker 1: not to REFI, to refly or to not refive that
Speaker 1: just the question. I also had a hamletesque skull in
Speaker 1: my hand when I had that in a candle that
Speaker 1: was no longer lit in your other hand, exactly exactly, Man.
Speaker 1: I saw a recent report that on average, for folks
Speaker 1: who can refinance their home, that each individual could say
Speaker 1: about two and seventy dollars a month, totaling one point
Speaker 1: six billion dollars, which is a huge amount of money.
Speaker 1: So we're gonna talk about if you should be refinancing
Speaker 1: your home, and we're gonna talk about how to do
Speaker 1: that on this episode. Yeah, and there are some good
Speaker 1: rules of thumb. I think they will be able to
Speaker 1: offer folks. But but it's also very specific and gonna
Speaker 1: get into some of those specifics. But like you said, Matt,
Speaker 1: a lot of people could save a lot of money,
Speaker 1: and a lot of people either have heard or seen
Speaker 1: an article refinancing, like everyone's doing it right now. And yes,
Speaker 1: you should feel the peer pressure to at least consider it,
Speaker 1: even if you don't have a home. Consider refinancing. Yeah,
Speaker 1: we're gonna sell you that hard, you know, but refinancing
Speaker 1: is a good idea for a lot of folks. And
Speaker 1: if you're one of those folks who can save a
Speaker 1: ton of money every month by by doing a REFI
Speaker 1: I mean that's big news, sure is, man. But before
Speaker 1: we kick things off, I wanted to talk about going
Speaker 1: green or that zero waste lifestyle that you might see
Speaker 1: kind of cropping up here and there. I'll tell you
Speaker 1: what you do. One search for anything now on the Internet,
Speaker 1: and then before you know it, you're getting fed all
Speaker 1: these different ads, specifically for me Instagram. Anytime I google anything,
Speaker 1: three seconds later there's an ad for that very thing
Speaker 1: or a competing company popping up in my Instagram feed.
Speaker 1: And it is crazy. So evidently I searched something that
Speaker 1: made the algorithms think that I want to spend a
Speaker 1: bunch of money on these zero waste products because I'm
Speaker 1: getting fed things like these bees wax wraps. Have you
Speaker 1: seen these? I mean it's cloth and it's like confused
Speaker 1: with wax. And instead of using typer wear like use
Speaker 1: that you go to the butcher and you put your
Speaker 1: raw meat in this fabric and you take it home
Speaker 1: and then you wash it when you take the meat
Speaker 1: out of it, like that kind of stuff. I I
Speaker 1: actually just reuse plastic ziploc back. Yes, well, that's I
Speaker 1: think that's the real answer. That's why I want to
Speaker 1: talk about this is because so much of those products
Speaker 1: it's just marketing and it's consumption driven. It's it's so
Speaker 1: ironic that we're being fed these advertisements to buy these
Speaker 1: things that will miraculously allow us to become less wasteful,
Speaker 1: when in fact, that's sort of the epitome of waste, right,
Speaker 1: purchasing something that you don't really need because you already
Speaker 1: have some products that can actually provide that utility that
Speaker 1: you are truly needing. And I'm not saying that I'm
Speaker 1: immune to this either, right, Like I get sucked in
Speaker 1: the advertisements, Like I see the cool stainless steel straw,
Speaker 1: the drinking straw, and I kind of want that because
Speaker 1: I see it looks awesome. It looks like something I
Speaker 1: can keep in my pocket. And I like putting cool
Speaker 1: metallic things in my pocket. You know, like one of
Speaker 1: those I might be turning into one of those every
Speaker 1: to care you guys. You know, I got like my
Speaker 1: little pocket knife, Like what else can I fit my
Speaker 1: pockets that that might come in handy. If you get
Speaker 1: some cargo shorts, then you can do it even more,
Speaker 1: or cargo kilts. But I think a good challenge is to,
Speaker 1: instead of looking at the different products out there that
Speaker 1: will allow us to become something that we aspire to
Speaker 1: be in this case, like look at our actual waste,
Speaker 1: Like look in the trash can, what's going in the
Speaker 1: trash And by identifying those things, I think we can
Speaker 1: find ways that allow us to become less wasteful. And
Speaker 1: not to mention, on top of that, the things I
Speaker 1: think that oftentimes have a lot of packaging tend to
Speaker 1: cost more because they're the sort of like one time
Speaker 1: use things, or they're the convenience foods or products, and
Speaker 1: in reality, we could probably do with less of those
Speaker 1: products altogether. Yeah, Matt, and we talked with someone who's
Speaker 1: kind of an expert in this field. Back in episode
Speaker 1: number seventy two, we brought Katie Wolk Stanley on and
Speaker 1: she goes by the moniker on the internet, the non
Speaker 1: consumer Advocate, and the title of that episode was stopped
Speaker 1: buying new stuff, and Katie is is concerned with how
Speaker 1: we treat the earth and the things we waste and
Speaker 1: the money that we waste at the same time, and
Speaker 1: I think she would completely agree that buying new things
Speaker 1: in an attempt at becoming greener is just not the
Speaker 1: way to go about it. Really, the clutch move. The
Speaker 1: biggest thing that we could all do as human beings
Speaker 1: is to stop buying new stuff and focus instead on
Speaker 1: filling our homes or apartments wherever we live with used items,
Speaker 1: whether that's clothing, furniture, the car we drive. If we
Speaker 1: can prioritize buying used and holding onto those things longer,
Speaker 1: that's the biggest dent we can make in a culture
Speaker 1: that attempts to spur us on towards more and more consumption.
Speaker 1: And so yeah, I agree, don't buy into the advertisers.
Speaker 1: Don't think that you're becoming more green by buying more things.
Speaker 1: Shifting our mindset of what it takes to be a
Speaker 1: greener individual in the society, I mean, that's that's the key. Yeah, Yeah,
Speaker 1: that's so true. Man, That's that's a great challenge for us,
Speaker 1: something that we can implement in our lives. I guess,
Speaker 1: you know, you just see so many things in our
Speaker 1: world that oftentimes seems silly, and sometimes when you actually
Speaker 1: see it for what it is, it can kind of
Speaker 1: be darwing almost right, Like I'm thinking specifically too, of
Speaker 1: like the fancy water bottles. I'm not going to name
Speaker 1: any of the name brand ones out there, but they're
Speaker 1: really expensive, like the stellated you know, bigger water bottles.
Speaker 1: And again, there's nothing wrong with getting one of those
Speaker 1: water bottles if you're going to use it, and so
Speaker 1: literally there's a hole in it, right, but if you're
Speaker 1: getting one of those because you don't want your plastic
Speaker 1: bottles to end up in a landfill, but in reality,
Speaker 1: you're buying a new one of those water bottles maybe
Speaker 1: every six months, right, You're like you're getting the new,
Speaker 1: latest and greatest color, or there's a new model that
Speaker 1: actually does this. I think it's just important for us
Speaker 1: to realize that we're being marketed to and that we're
Speaker 1: being sold these products that are a not making us
Speaker 1: any happier, be that they're costing us a lot of money,
Speaker 1: and and see in reality they may not be helping
Speaker 1: with waste and pollution. Yeah, as you brought this up,
Speaker 1: it kind of made me think about energy efficiency too,
Speaker 1: and So let's say new TVs or new refrigerators use
Speaker 1: a whole lot less energy than their predecessors of ten
Speaker 1: years ago. That's great, And if you're one of those
Speaker 1: folks that needs a new refrigerator soon or a new TV,
Speaker 1: that's gonna save you every month on your energy bills.
Speaker 1: But just because that new TV uses fifty less energy
Speaker 1: than the one you currently have, that certainly doesn't mean
Speaker 1: you should go to your local best Buy or go
Speaker 1: to Amazon whatever buy a new TV right now. That's
Speaker 1: just faulty logic. And I think the same thing is
Speaker 1: true for the kind of the green product movement. Some
Speaker 1: of those things can potentially be helpful. So yeah, just
Speaker 1: like you wouldn't buy new TV to save eight dollars
Speaker 1: a year in electricity, you also shouldn't assume that buying
Speaker 1: products that are marketed as green and great for the
Speaker 1: earth are instantly helping you to waste less. Yeah, and
Speaker 1: Joel all that to say, I mean, we're not against
Speaker 1: products that are better for the earth, right Like, we
Speaker 1: love the earth, we like there to be less waste
Speaker 1: in the world. But we just want you to be
Speaker 1: to be smart about it and to take it back
Speaker 1: to our friend Katie. She has her motto or her slogan,
Speaker 1: which is use it up, wear it out, make it
Speaker 1: do or do without. Make sure to keep that in mind. Cool, Matt,
Speaker 1: All right, let's mention the beer that we're having on
Speaker 1: the show today. We're drinking Old Toffy and it's brewed
Speaker 1: by New Belgium Brewing at a Colorado. This is a
Speaker 1: Logger beer sent to us by listener Maggie. So, Maggie,
Speaker 1: thanks for sending this one our way. Yeah, and it's
Speaker 1: worth mentioning. Joel, you said Old Toffie, this is the
Speaker 1: mascot for NC State, and she certainly picked a beer
Speaker 1: that she has a vested interest with because she is
Speaker 1: actually a professor there at NC State. So I just
Speaker 1: wanted to mention that you and I have no collegiate
Speaker 1: ties necessarily it to NC State. I'm sure a second,
Speaker 1: not gonna let this beer go to waste, and we're
Speaker 1: gonna enjoy this one and share our thoughts at the
Speaker 1: end of the episode. Yeah. I have a feeling though,
Speaker 1: that they're going to contact us pretty shortly for honorary
Speaker 1: doctorates or something like that, so then we will have
Speaker 1: ties to the institution. How do you even get one
Speaker 1: of those an honorary degree. Do you have to be
Speaker 1: invited to give the speech at the at the end
Speaker 1: of the year, the commencement end of the year's sort
Speaker 1: of speech there at graduation? You know, I don't know
Speaker 1: how you do it. I assume it's similar to the
Speaker 1: way you get united in in England and it's just
Speaker 1: kind of one of those rare things that happened. But
Speaker 1: the fact that we featured their beer on our show,
Speaker 1: I mean, they're totally going to do it for us.
Speaker 1: I think Dr Matt has a nice ring to it.
Speaker 1: Dr Joel, great to see you today. All right, Matt,
Speaker 1: let's get onto the topic at a hand. Today we're
Speaker 1: asking the question to refin or not to refy, And
Speaker 1: basically we're in a refinance boom right now. Taking the
Speaker 1: advantage of a refi on your house can lower your
Speaker 1: interest rate and lower your monthly payments. But there are
Speaker 1: also costs involved in refinancing that can make it prohibitive,
Speaker 1: and not everyone is a good candidate to refinance. So
Speaker 1: is it the right move for you? Well, Matt and
Speaker 1: I were going to discuss what you need to consider
Speaker 1: and how to make sure you're refinancing effectively if you
Speaker 1: decide to go through with it. Yeah, joint to quickly
Speaker 1: sort of lay the groundwork right as to what a
Speaker 1: refinance is. Essentially, you're finding a new lender, and that
Speaker 1: new lender, once you move forward with them, they are
Speaker 1: going to pay off your current loan, and then you
Speaker 1: have a new loan with that new lender, and your
Speaker 1: payments go to them. Hopefully you have a lower interest rate.
Speaker 1: Oftentimes you're gonna have a different length of time, right,
Speaker 1: a different term once that refinance is complete. And so
Speaker 1: first let's talk about the why. Let's go over some
Speaker 1: of the sort of overarching guiding principles of why you
Speaker 1: might want to refinance. And you all, we kind of
Speaker 1: touched on this a second ago, but oftentimes folks refinance
Speaker 1: in order to lower their monthly mortgage payment. So by
Speaker 1: lowering your rate, you can potentially lower your monthly payments
Speaker 1: and give yourself a little more financial breathing room, just
Speaker 1: a little bit more margin in your life. But that
Speaker 1: being said, that is not our favorite reason to actually refinance. Yeah,
Speaker 1: the best reason to consider doing a refinance on your
Speaker 1: house is to save money on overall interest paid over
Speaker 1: the life of your loan. This is the even more
Speaker 1: important reason to consider a refight. It's going to have
Speaker 1: a bigger overall impact on your finances. Yeah, Jill, both
Speaker 1: of those are good reasons right to refinance. But the
Speaker 1: idea of sort of stepping back and looking at the
Speaker 1: total cost, the total amount that you're gonna pay for
Speaker 1: financing your home. The idea there is to be able
Speaker 1: to step back a little bit and to not just
Speaker 1: focus on making payments, not just seeing how much house
Speaker 1: you can afford month to month. It's essentially more of
Speaker 1: a holistic, sort of bird's eye view of your overall finances. Yeah.
Speaker 1: I mean, just like we would recommend when someone's buying
Speaker 1: a car, well, you don't want to finance it over
Speaker 1: seven years. Sure it's going to give you a lower
Speaker 1: monthly payment, but that's not the biggest thing you want
Speaker 1: to take into consideration. In the United States of America,
Speaker 1: we've kind of become payment buyers, and for only considering
Speaker 1: the actual outgoing number every month and not that holistic
Speaker 1: overall picture, it's going to lead us to make some
Speaker 1: poor decisions. So, just like with buying that car, you
Speaker 1: don't want to refinance your house just to get a
Speaker 1: lower monthly payment, although that could be a nice side
Speaker 1: ben Fit and Joe, you know what, to refinance? It
Speaker 1: costs money, right, it costs a lot of money. Because
Speaker 1: it does cost so much, there are a number of
Speaker 1: things that you want to consider. One of the things
Speaker 1: you want to consider is how long you'll actually own
Speaker 1: that home. If you think you might only be there
Speaker 1: for another a year or two, it's probably a bad
Speaker 1: idea for you. It's not gonna make a whole lot
Speaker 1: of sense because you'll never make up that money that
Speaker 1: you spent on those closing costs in the amount of
Speaker 1: money that you're gonna be able to save every single month.
Speaker 1: But then maybe on the other end of the spectrum,
Speaker 1: let's say you're gonna be there for like, say, at
Speaker 1: least ten years, Well, for you, it's likely going to
Speaker 1: be a pretty good move, right. It's it's not a
Speaker 1: matter of if you'll be able to earn that money back,
Speaker 1: but just when. Yeah. Good rule of thumb is a
Speaker 1: thirty month rule. So if you run the numbers and
Speaker 1: you will break even, And because the savings of your
Speaker 1: new loan and lower interest rate, you'll break even versus
Speaker 1: the cost you incurred in order to make this REFI happen, well,
Speaker 1: then likely it's a good idea for you to do
Speaker 1: the refi. It's so incredibly rare for someone to stay
Speaker 1: in their house for an entire thirty year mortgage term,
Speaker 1: right that that almost never happens. And so really it
Speaker 1: comes down so how long you're planning on being in
Speaker 1: the house. Obviously, things can happen and life doesn't always
Speaker 1: work out the way we think it's going to, but
Speaker 1: it's important for you to assess how long do I
Speaker 1: think I will be in this home? And if you
Speaker 1: think you will be in the home for quite a
Speaker 1: while and the math works out in regard to that
Speaker 1: thirty month break even point, well, then refinancing can make
Speaker 1: a whole lot of sense. So next we're gonna cover
Speaker 1: some of the specific considerations that you want to keep
Speaker 1: in mind as you are deciding whether or not you
Speaker 1: should refinance. We're gonna get to those right after the
Speaker 1: break all right, man, We're gonna get to some of
Speaker 1: those specific factors that are really helpful as you are
Speaker 1: working through whether or not you should be refinancing. And honestly,
Speaker 1: it's a question on so many people's minds because mortgage
Speaker 1: rates are near all time loads again, and they've really
Speaker 1: plummeted over the last year. And I feel like, as
Speaker 1: we're asking ourselves this question, should we be refinancing? This
Speaker 1: is an instance where analysis paralysis can keep you from
Speaker 1: taking advantage of uber low rates. The bottom line is
Speaker 1: that nobody knows where rates are going, but they're currently
Speaker 1: incredibly low. So right now is a specific time where
Speaker 1: a lot of people should be considering refinancing. So is
Speaker 1: now the right time? Well, it could be, and Matt,
Speaker 1: let's talk about the specific factors that will help you
Speaker 1: determine whether or not it's the right time for you. Yeah. Well,
Speaker 1: first I wanted to address if someone is listening to
Speaker 1: this episode and they happen to be listening, say six
Speaker 1: months later, and you're thinking, dang it, like I totally
Speaker 1: missed the train on refinancing. Well, there's two things that
Speaker 1: you can do. First, you can look at a graph
Speaker 1: and you can see where rates currently are as you
Speaker 1: are listening to this episode. And you can probably zoom
Speaker 1: out a little bit and look at the past couple
Speaker 1: of years and see rates are still historically low. You know,
Speaker 1: we are still in a great spot even if they're
Speaker 1: not the lows they've ever been exactly could still be
Speaker 1: really good. And secondly, we would recommend that you look
Speaker 1: at the mortgage rate that you currently have right now,
Speaker 1: because it doesn't really matter if rates were historically low
Speaker 1: and you kind of missed that boat. If the current
Speaker 1: market rates are significantly lower than the rate that you
Speaker 1: currently have, then you should still really consider a refinance.
Speaker 1: You're gonna want to dig a little bit de peper,
Speaker 1: specifically into your own finances, all right, So let's talk
Speaker 1: about those specific things that people should be considering before
Speaker 1: they decided to actually get going and make a refi happen.
Speaker 1: Even though mortgage rates are insanely low, that doesn't mean
Speaker 1: that it's a no brainer for you to refinance before
Speaker 1: you actually do it. Here are the main factors you
Speaker 1: need to consider to know whether you're a good candidate
Speaker 1: or not. The first thing is to know your credit score.
Speaker 1: To qualify for the lowest of mortgage rates, you're gonna
Speaker 1: need a really solid credit score, and that means typically
Speaker 1: in the range of seven seven forty. If you're above
Speaker 1: seven twenty, in all likelihood with most lenders, you're going
Speaker 1: to get the best rate that they offer. Some lenders
Speaker 1: might have a threshold of seven forty, but if you're
Speaker 1: in that range, you know that you'll be able to
Speaker 1: get a really good rate. And if you don't know
Speaker 1: what your credit score is, well, we've talked about multiple
Speaker 1: resources for you. Go check that out. Your current credit
Speaker 1: card company might offer that every month. If not, credit
Speaker 1: scorecard dot Com is a great tool, and so is
Speaker 1: credit Karma. Basically, if refinancing is on your radar, you
Speaker 1: need to know your credit score because that is going
Speaker 1: to have a huge impact on whether or not it's
Speaker 1: gonna make sense for you. Ye dull, you know. The
Speaker 1: size of that impact is going to depend on a
Speaker 1: lot of different things. But for instance, let's just say
Speaker 1: you had a hundred point drop in your credit score
Speaker 1: from seven forty maybe down to six forty. That score
Speaker 1: is gonna cost you anywhere between like sixty and eighty
Speaker 1: bucks a month on a median home in the US.
Speaker 1: And that doesn't sound like much, right, You think sixty bucks,
Speaker 1: that's not that big of a deal, But over the
Speaker 1: course of the loan, that's over twenty five dollars that
Speaker 1: you're gonna be paying just for having a credit score
Speaker 1: that got busted up a little bit. Before you're refinanced.
Speaker 1: All Right, Another factor that you want to keep in
Speaker 1: mind when you are considering if you're a good candidate
Speaker 1: for a refinance or if your house actually is a
Speaker 1: good candidate to be refinanced, right, is equity and real
Speaker 1: quick equity is just the market value of your home
Speaker 1: less the amount that you owe on it. And if
Speaker 1: you have less than equity in your home, a conventional
Speaker 1: loan refinance is likely not going to be possible for you.
Speaker 1: And so if you don't have enough equity, bringing cash
Speaker 1: to the closing table can actually help you to get
Speaker 1: a conventional loan. Well, it's not impossible, but you're gonna
Speaker 1: be paying private mortgage insurance right p m I, which
Speaker 1: is a p I T A so many abbreviations on
Speaker 1: this episode, right, So keep in mind though that if
Speaker 1: you don't have enough equity, you can bring cash to
Speaker 1: the closing table and that can help you to get
Speaker 1: a conventional loan at a great rate without p m I.
Speaker 1: Another but maybe similar scenario is if the value of
Speaker 1: your home has gone up since you purchased it. Well,
Speaker 1: guess what if you didn't have enough equity initially when
Speaker 1: you purchased it, but the value of your home has
Speaker 1: gone up. Well, in that case, you don't have to
Speaker 1: come to the table with additional funds. Are Another thing
Speaker 1: you're going to need to know in advance of pulling
Speaker 1: the trigger on a refinance is your d T I ratio.
Speaker 1: That's debt to income. Knowing your debt to income ratio
Speaker 1: is a crucial factor in qualifying for a loan. Lenders
Speaker 1: are going to look at you if you have a
Speaker 1: debt to income ratio of more than forty and your
Speaker 1: debt to income ratio you can find that out by
Speaker 1: dividing your monthly debt payments by your gross monthly income.
Speaker 1: That number is the way that lenders measure your ability
Speaker 1: to be able to repay your loan. So the lower
Speaker 1: your debt to income ratio is, the more favorable you look,
Speaker 1: which means they're happy to lend you money. Yeah, you know,
Speaker 1: calculating your debt to income ratio. That's not tricky math, right,
Speaker 1: You're just kind of making a calculation. But you do
Speaker 1: want to make sure that you are getting accurate numbers
Speaker 1: in there. And so when you are calculating your debt payments,
Speaker 1: you want to calculate everything. We're talking student loans, credit card, debt,
Speaker 1: car payment, any debt that you owe, any payment that
Speaker 1: you have that needs to go into your total debt
Speaker 1: number in order for you to get an accurate debt
Speaker 1: to income ratio. All right, Matt, Now let's get into
Speaker 1: some of the specific good reasons to refinance. We talked
Speaker 1: about the big picture that it's helpful to lower your
Speaker 1: monthly payments. It's even more helpful to save in overall
Speaker 1: interest paid over the years. But additionally, let's say you're
Speaker 1: in an ARM an adjustable rate mortgage. Well, considering we
Speaker 1: just talked about the fact that we're at historic low rates,
Speaker 1: the likelihood of your interest rate going up on your
Speaker 1: adjustable rate mortgage is decently high because as rates fluctuate
Speaker 1: ultimately over the years, they are barring something catastrophic going
Speaker 1: to rise. So getting out of an arm getting out
Speaker 1: of an adjustable or mortgage and into a fixed term
Speaker 1: makes a whole lot of sense for a lot of folks,
Speaker 1: especially if you're going to be in the house for
Speaker 1: quite a while. All Right. Another good potential reason to
Speaker 1: get a refi is if you can knock out some
Speaker 1: p m I. If you're able to get rid of
Speaker 1: private Morgan insurance while at the same time securing a
Speaker 1: lower rate, so that would end up saving you, you know,
Speaker 1: twofold in the long run, then you definitely want to
Speaker 1: consider p m I. On a typical two home, you
Speaker 1: could be paying anywhere between one d two hundred bucks
Speaker 1: a month and p m I, and so you get
Speaker 1: enough equity in the home to where you no longer
Speaker 1: have to pay that. Yet your lender has to stop
Speaker 1: charging you for p m I once you hit a
Speaker 1: seventy eight percent loan to value ratio. But that is
Speaker 1: based on the initial appraisal price of the home, and
Speaker 1: if your home has gone up in value a good bit,
Speaker 1: you could still be waiting a long time for p
Speaker 1: m I to naturally drop off so that you're not
Speaker 1: charged for it anymore. And and that can be a
Speaker 1: hundred and fifty two hundred dollars a month. And by refinancing,
Speaker 1: getting a lower rate and knocking out p m I
Speaker 1: at the same time, that can save you hundreds of
Speaker 1: dollars every month while paying less interest over the life
Speaker 1: and a loan. That can be just a win win
Speaker 1: for folks in a pm I situation where they have
Speaker 1: seen a good bit of equity growth. You know, refinancing
Speaker 1: your home to knock out p M I, REFINANCI your
Speaker 1: home to get out of an arm. Those are both
Speaker 1: great reasons to refinance. Now let's talk about a reason
Speaker 1: that might be a good reason to refinance, and that
Speaker 1: is if you're gonna do a cash out REFI. That
Speaker 1: is when you basically refinance, but you remove equity from
Speaker 1: the home. Yeah, it's basically like saying, give me some
Speaker 1: cash in my palm while I'm doing the three five.
Speaker 1: I'll take that lower interest rate and some cash in
Speaker 1: my pocket at the same time. Like we said, that
Speaker 1: might be a good idea, but you will pay a
Speaker 1: higher rate of Sometimes you're gonna pay an eighth or
Speaker 1: a quarter of a point higher if you go with
Speaker 1: that cash out. And this is only ever going to
Speaker 1: be a good idea if you're going to use that
Speaker 1: money in a positive way. So basically, if you're investing it.
Speaker 1: That could be if you're investing in yourself, right, so
Speaker 1: like higher education or more traditionally you know, an a
Speaker 1: rental property or in another business. In any case, you're
Speaker 1: taking this money and you're looking to grow it more
Speaker 1: than it would grow if it was just sitting there
Speaker 1: tied up in your house. Actually did a cash out
Speaker 1: REFI on a propty that we owned in order to
Speaker 1: take that money, and we use that as a down
Speaker 1: payment on another house that we're buying. So we ended
Speaker 1: up renovating the house. We essentially flipped it, sold it,
Speaker 1: and man, we made a good bit of money that
Speaker 1: year in that specific instance. You know, it was a
Speaker 1: smart move for us, but you've got to be really,
Speaker 1: really careful, honestly, Like, even looking back, I'm not sure
Speaker 1: if I would do that again. Yeah, And I'm considering
Speaker 1: doing a cash out refinance right now in order to
Speaker 1: build the accessory dwelling unit in my backyard. Mat We've
Speaker 1: talked about that, so I'm just kind of in the
Speaker 1: middle of thinking through is it a good idea or not,
Speaker 1: And based on the hard numbers, I think it is.
Speaker 1: For me. I still hesitate at going to cash out
Speaker 1: refi route. So cash out refis can be a good
Speaker 1: idea for seasoned investors who know what they're doing, but
Speaker 1: I would be very very careful before taking that route,
Speaker 1: and it's definitely not a good idea to go the
Speaker 1: cash out refined direction if you're pulling that money out
Speaker 1: to consume it. If you're planning on taking a vacation
Speaker 1: or something like that, or buying a boat. Let's say
Speaker 1: you're doing that like that, there's definitely not a boat,
Speaker 1: right like maybe a tesla right like that sounds like
Speaker 1: a lot more fun to me. The boat. Well, at
Speaker 1: least it's gonna save you a little on electricity every month, right,
Speaker 1: but always cash. Our refis are a total no if
Speaker 1: you're looking to add to your consumption or inflate your
Speaker 1: lifestyle by doing so. Okay, So those are some different
Speaker 1: reasons why folks refin You know, this is called how
Speaker 1: the money. So we're gonna talk about now how to refinance,
Speaker 1: and we're gonna get to that right after the break.
Speaker 1: All right, Matt, we've talked a lot about refinancing, but
Speaker 1: we haven't really covered how to do it yet. So
Speaker 1: let's get into that. If you feel like you're a
Speaker 1: good candidate based on the things that we've covered, The
Speaker 1: biggest key to saving money when you are refinancing is
Speaker 1: to shop with multiple lenders. Oftentimes we shop a lot
Speaker 1: for the home. We go into fifteen or twenty homes
Speaker 1: before we make an offer, but we shot very little
Speaker 1: for financing. Lots of times people go with the lender
Speaker 1: that their real estate agent recommends without shopping the market.
Speaker 1: Online lenders can be a great option. Quiking Loans is
Speaker 1: a great place to check. Their Rocket mortgage product has
Speaker 1: done well in customer satisfaction surveys. Credible has a new
Speaker 1: online mortgage shopping tool that's really really good. Costco has
Speaker 1: a mortgage program that shops rates with multiple lenders. I
Speaker 1: know you're gonna try to find a way to slide
Speaker 1: Costco in there. I always do, man, I go there
Speaker 1: by my favorite Kirkland signature branded products and then you
Speaker 1: know what, I also shop for mortgages with them. Yeah,
Speaker 1: I'd like to sign up for that Kurrikland Signature Premium refinance. Please.
Speaker 1: And if only the company that did your refive was
Speaker 1: Costco under the Kirkland signature label, that'd be amazing. Another
Speaker 1: great place to go when you're looking to refinance is
Speaker 1: to check local credit unions. Credit unions oftentimes have the
Speaker 1: lowest overall rates in the market. Another place to go
Speaker 1: is to contact a mortgage broker who shops rates with
Speaker 1: a lot of different lenders. Basically, there are a lot
Speaker 1: of potential good places to go to look for rates.
Speaker 1: Just don't be one of those people that designs to
Speaker 1: do a refinance and doesn't shop for the best one
Speaker 1: for them. Yeah. Man, it's all about that due diligence, right.
Speaker 1: And also, don't just look at the headline rates like
Speaker 1: you don't just go to the website and see whatever
Speaker 1: rate that they're advertising on the home page. You want
Speaker 1: to factor in all the different costs and you can
Speaker 1: see those on your loan estimate to give you sort
Speaker 1: of that apples to apples comparison. Lenders are actually required
Speaker 1: to give you those estimates within three business days after
Speaker 1: you apply with them, and those costs are gonna be
Speaker 1: on that loan estimate. They're gonna be itemized. It's gonna
Speaker 1: be nice. And because you've shopped around, it's gonna be
Speaker 1: really easy for you to compare one of those loan
Speaker 1: estimates to the two other ones, because you're gonna have
Speaker 1: at least three loan estimates there, right, yeah, or right,
Speaker 1: or maybe five loann estimates. Okay, I'll do it, I'll
Speaker 1: do it. Yeah. You definitely want to make sure you're
Speaker 1: getting quotes, you're getting those loan estimates in hand from
Speaker 1: a lot of different lenders. That's gonna be the biggest
Speaker 1: way you end up saving money in the refi process.
Speaker 1: And Joel, you know, I think a lot of folks
Speaker 1: would hear us say that, and they're gonna freak out
Speaker 1: because they're gonna think, what's gonna happen to my credit score?
Speaker 1: It's gonna plumb it when I fill out all of
Speaker 1: those applications, all those inquiries, They're gonna lower my score
Speaker 1: in a big way. Right, Well, they do a little bit,
Speaker 1: but not nearly as much. If you make those inquiries,
Speaker 1: if you apply for that refinance within a short period
Speaker 1: of time, within a week or two, all those separate
Speaker 1: hard polls against your credit essentially kind of get lumped
Speaker 1: together as one. So when the time comes and you're
Speaker 1: shopping for that refi, man, just go about the business
Speaker 1: of knocking all those out because a you do want
Speaker 1: a bunch of them to be able to compare, but
Speaker 1: b you also want to make sure that you're not
Speaker 1: damaging your credit. Yeah, Matt, And folks to just know
Speaker 1: that typical closing costs for a refinance are two to
Speaker 1: four pc of the overall loan value, So it costs
Speaker 1: a good bit of money to do a refi, which
Speaker 1: is why we mentioned earlier on in the episode that
Speaker 1: thirty month break even point. If you're refinancing your home
Speaker 1: and your total loan amount is a hundred fifty thousand dollars,
Speaker 1: well you can expect like four thousand dollars in closing costs,
Speaker 1: so you want to make sure that it's worth it. Yeah,
Speaker 1: you know, the loan amount that you're refinancing like that
Speaker 1: has a pretty large impact on those closing costs. But
Speaker 1: there are a lot of different variables to to keep
Speaker 1: in mind, and because of that, it makes it difficult
Speaker 1: to sort of have a rule of thumb. You know,
Speaker 1: lowering your rate by one percent like that sounds pretty great,
Speaker 1: but refinancing still might not be worth it for you.
Speaker 1: There just are so many different individual factors at play
Speaker 1: when determining if a REFI is the right move for you.
Speaker 1: Like you've got to look at the bank cost, title cost,
Speaker 1: there's different third party costs. Some of those things you
Speaker 1: can shop for, but others you can't. Just don't be
Speaker 1: afraid to actually negotiate on some of the different items
Speaker 1: that you do have control over. Yeah, once you have
Speaker 1: those loan estimates in hand, you can always go back
Speaker 1: to a potential lender and ask if there's any wiggle
Speaker 1: room to pay less, Matt. The last mortgage I got,
Speaker 1: there was one lender I felt a little more comfortable with,
Speaker 1: but the overall cost I was going to incur by
Speaker 1: going with them were more than another lender. So I
Speaker 1: just showed them my other loan estimate. I asked if
Speaker 1: they can match it. They did some work and they
Speaker 1: actually ended up beating it. Nice man. Yeah, so don't
Speaker 1: be afraid to negotiate. Don't be afraid to ask the
Speaker 1: question to see if that lender can do better than
Speaker 1: their initial offering. Yeah, negotiating closing costs on a refine
Speaker 1: like that is an instance where it is perfectly acceptable
Speaker 1: to show up at the table. You've got other numbers
Speaker 1: to compare to you, and you ask basically like can
Speaker 1: you beat this? Right? There's other instances where you shouldn't negotiate,
Speaker 1: like the price of your dinner. Yeah, but this is
Speaker 1: not one of those. And another tool that can be
Speaker 1: helpful in this whole process is an online mortgage to
Speaker 1: re high calculator. It can help you analyze the numbers
Speaker 1: and the cost you might be going back to that
Speaker 1: over and over as you consider different loan terms and
Speaker 1: interest rates. The ultimate sweet spot for refinancing is lowering
Speaker 1: your rate and lessening your term at the same time.
Speaker 1: So let's say you originally got a thirty year mortgage,
Speaker 1: You've been in that home for eight years, you've got
Speaker 1: twenty two years left on it, and your interest rate
Speaker 1: is four and a half. Well, the sweet spot for
Speaker 1: you is to go into a fifteen or twenty year mortgage,
Speaker 1: lower your interest rate by hopefully over a point, and
Speaker 1: at the same time lower your overall remaining years left
Speaker 1: on that mortgage. Not everybody can hit that sweet spot,
Speaker 1: but that is an ideal circumstance to make sure you
Speaker 1: at least consider lessening your term as part of refinancing.
Speaker 1: And you know, the whole idea behind lessening that term
Speaker 1: shortening the number of years you have left paying that mortgage.
Speaker 1: It's not just a numbers game, but there's also that
Speaker 1: mental and psychological element to it. If you're a total
Speaker 1: nerd and you're all about the numbers, you might argue that, like, no,
Speaker 1: I want to have a thirty year term, and I
Speaker 1: want to get that rate as low as possible. I'm
Speaker 1: gonna invest that money and While that might work or
Speaker 1: some I think for a lot of other folks, there
Speaker 1: is gonna be a greater benefit from not having a
Speaker 1: mortgage altogether because of refinanced that shorter term, and that's
Speaker 1: no longer a debt, that's no longer a payment that
Speaker 1: they have every month that is hanging over their heads. Man, Personally,
Speaker 1: I'm not anywhere close to having a mortgage paid off
Speaker 1: on any of my properties, but I look forward to
Speaker 1: it knowing that one day that's just one of those
Speaker 1: huge outgoing payments that I'm no longer going to have
Speaker 1: to pay, just to have that burden lifted off of me,
Speaker 1: you know what I'm saying. What a sweet feeling that
Speaker 1: would be, right, Yeah. Yeah. But by the way, on
Speaker 1: that mortgage three five calculator, we will link to one
Speaker 1: of our favorites in the show notes on our website,
Speaker 1: and also on our website, we're gonna have a picture
Speaker 1: of the beer that we're enjoying right now, Joel, you're
Speaker 1: gonna take us back to the beer. Oh yeah, nice transition, Matthew. Okay, Yes,
Speaker 1: So today on the show, we drank a beer called
Speaker 1: Old Tuffie by New Belgium Brewing and It's a beer
Speaker 1: that New Belgium specifically brewed for NC State, and listener
Speaker 1: Maggie is a professor there and so she sent this
Speaker 1: on our way. Big thanks to Maggie. Dude. I don't
Speaker 1: always drink loggers, Matt, but when I do, I'm gonna
Speaker 1: drink Toffy Lagger. Name that beer commercial that I just
Speaker 1: stole a line from. Oh, I know the commercial. I
Speaker 1: just wasn't gonna talk about a Mexican style beer because
Speaker 1: I personally feel that those are pretty terrible. There's a
Speaker 1: couple of good ones, Yeah, I like Negro Modelo a lot,
Speaker 1: so Yeah, a little more flavor going on there, Yeah,
Speaker 1: But I feel like when it comes to a logger,
Speaker 1: for me, I what I really enjoy about a logger
Speaker 1: is that they're so clean and refreshing, right and specific
Speaker 1: to this beer, That's what I like so much about
Speaker 1: it is that it's just really clean. Sometimes with loggers
Speaker 1: you can kind of get this off putting, maybe like
Speaker 1: some metallic flavors or there's like a skunkiness to it. Man,
Speaker 1: that was not the case with this one. It was
Speaker 1: so good. I feel like, in my mind, like the
Speaker 1: essence of beer is a logger. You know, like if
Speaker 1: there's one beer that had to be qualified, like which
Speaker 1: one beer exists that you would call pure beer? Like
Speaker 1: it's got to be a logger, you know. Yeah, I
Speaker 1: guess when you boil it down, the essence of a beer, yeah,
Speaker 1: probably is just a super clean, crisp, refreshing logger. Yeah yeah,
Speaker 1: And this was that it really was so much better
Speaker 1: than a macro beer logger. I would say it's perfect
Speaker 1: for an anti state basketball or football game, perfect for
Speaker 1: game day, right exactly. Yeah, it was like Hams. Have
Speaker 1: you ever had a Hams before? Yeah? I have. That's
Speaker 1: like the old school vine. Is kind of like an
Speaker 1: old school one, but it's really good. It's like a
Speaker 1: hands but way better. Yes, most definitely, most definitely yes.
Speaker 1: So thanks to Maggie for sending this one our way.
Speaker 1: It was really enjoyable to drink on the show. And honestly,
Speaker 1: it's not the style that I gravitate to most often,
Speaker 1: but it's so nice to have a really good one.
Speaker 1: And most folks out there that are only drinking Butter Miller,
Speaker 1: like they just haven't had a good logger in their
Speaker 1: life yet, so yeah, they need to check out something
Speaker 1: like this. Brewed by a quality craft brewer. Man. We
Speaker 1: don't drink a lot of laggers, but personally, the more
Speaker 1: good loggers I drink, I I also realized that that
Speaker 1: I've never really had a great logger in the course
Speaker 1: of my beer drinking years, and so it's a lot
Speaker 1: of fun to switch it up. So again, thanks Maggie
Speaker 1: so much for donating this beer to the show. All right,
Speaker 1: maw let's get to our final thoughts for this episode.
Speaker 1: When we're talking about why you should consider refinancing, Well,
Speaker 1: the best reason to consider it is to save money
Speaker 1: in the overall interest that you're going to pay over
Speaker 1: the life of the loan. If you're going to be
Speaker 1: able to do that, then there's a good chance refinancing
Speaker 1: makes a lot of sense for you. But for you,
Speaker 1: really know, if you're in a financial position to refinance,
Speaker 1: there are some individual considerations that you need to take
Speaker 1: into account. Your credit score. You want to make sure
Speaker 1: that you've got seven twenty or higher to get the
Speaker 1: best rate, and also the amount of equity that you
Speaker 1: have in your house. You want to make sure that
Speaker 1: you have at least or more in order to qualify
Speaker 1: for a solid conventional loan without p M I Yeah,
Speaker 1: and don't forget to shop with multiple lenders. You can
Speaker 1: shop with online lenders, local lenders, even costco right, but
Speaker 1: the key is to apply and get loan estimates from
Speaker 1: a handful so that you can make the apples to
Speaker 1: apples comparison and choose the best lender that's going to
Speaker 1: save you the most money. I guess it doesn't have
Speaker 1: to be an apples to apples comparison. It can be
Speaker 1: like a logger to logger comparison. There we go, Well, man,
Speaker 1: I think that's gonna be that for this episode. As always,
Speaker 1: you can find our show notes up on our website
Speaker 1: at how the Money dot com. Yeah, and if this
Speaker 1: is your first episode or you're new to the show, well,
Speaker 1: don't forget to hit that subscribe button so that you're
Speaker 1: notified of new episodes when they come out. Alright, buddy,
Speaker 1: until next time, Best friends out, best Friends out. Mmmm