Beating Broke

Personal Finance from the Broke Perspective

Mortgage Refinance Underway

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A few weeks ago, I asked all of your advice on whether we should refinance our mortgage.  At the time, we had just begun thinking about it and were still working out the numbers.  As you can probably guess from the title of this article, we went ahead and did it.

So, here’s why.  Part of our hesitation was that we plan on being out of our house in less than two years and it would take about two and a half to earn the closing costs back with the saved interest.  I think Financial Samurai hit the nail on the head in the comments of that original post when he asked what % we were sure that we would be moving in the next two years.  And the truth of the matter is that we hadn’t planned on living in the house longer than 4 or 5 years and here we are going on 6 years.  So, yes we plan on moving, but there is a chance that we will end up not moving.  More importantly, I think we can earn back those closing costs a lot quicker by using the saved interest money to pay down other, higher interest, debt.  If we’re paying off debt at 14%, we’re saving quite a bit each month and that will add up fast.

We did a little bit better on the interest than I had thought.  Originally, I had estimated that we’d get about 4.375%, but we actually got in at 4.25%.  Every little bit helps.  Of course, the downside is that will end up paying a bit more than I had anticipated in closing costs.  Which isn’t great, but overall, the math is still very favorable to us.  We also reduced our monthly mortgage payment by about $130 or so.  That’s a pretty good chunk of change that can go towards our other, higher interest, debt.  We’ve got a few more pieces of paperwork to turn in and an official assessment to get before we can truly seal the deal, but all of that shouldn’t have any effect on the turnout.  I’m hoping that we can have it all finished up and we can be paying the lower mortgage payment sometime around October or November.

What about you guys?  Any of you taking advantage of the low rates to refinance your mortgages?

Balanced Billing: Budget Helper

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In our house, we have a gas fueled furnace for heat and an electric fueled central air unit.  So, as you can likely deduce, our gas bill is much higher in the winter months and our electric bill is much higher in the summer months.  But, our bill hardly ever fluctuates.  Why is that?  We’ve got both bills set up on a little budget helper called balanced billing. It’s a lifesaver when it comes to doing a budget, and it offsets those peak months like the Money Beagle just had.

How does it Work?  It’s pretty simple really.  The gas/electric company takes our bills for the last year and adds them all up and then divides by 12.  That’s our bill for the month.  With the gas company, it adjusts each month, so we’ll see a variation of up to $10 or so dollars each month.  And with the electric company, they adjust once a year so we usually end up with a little bit higher bill (about $20) for one month to make up for any difference and then it’s back to where it was.  I highly recommend it.

How is Balanced Billing a budget helper?

Here’s a little anecdotal story to cement the need for such a program.  When I was still in college, I lived with 4 other guys in this awesome old house.  It didn’t have air, so it was warm in the summer.  In the winter, it had a gas fueled boiler that fed those old registers in each room.  The first winter we lived there, our typical gas bill up to that point had been about $200.  Not bad when you split it 5 ways.  Then we had a particularly cold November.  Our bill in December was over $650!  Obviously, it was a bit of a shock to us when our heating bill was more than the rent each month!  Luckily, we were all pretty good friends and a couple of the guys floated the rest of us some money to help pay for the bill.  But, imagine what would have happened if that had happened to a family that was living paycheck to paycheck?  Even if you aren’t living paycheck to paycheck, imagine what that would do to your budget!

And that, my dear readers, is why balanced billing can be such a wonderful budget helper.  If you’re interested, it usually just takes a quick phone call to the utility company to get it set up.

New Home Sales Down

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So, are you surprised by that news?  That new home sales dropped like a rock in May?  I can’t say that I am.  I try hard to keep my politics out of this site, but what the heck were they thinking?  If you look at the chart that CNNMoney has posted, you can clearly see that, not only did they drop, but they dropped below where they were before.

And obviously, there is a very nice spike for a while.  Incentives do make a bit of a difference.  And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives.  But the spike was just that.  A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house.  What it didn’t do was return home sales to anything like previous numbers.  In fact, it didn’t even get the numbers back to 50% of what they were in 2000!  And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home.  You shouldn’t be dis-allowed from purchasing a home.  But, you still have to pay for it!  Owning a home is not a right.  The ability to purchase one if you can afford it is.  Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in.  And that crashs’ ripples are still being felt throughout the country and the world.  Creating incentives to buying a home just extends that streak.  People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down.  But, when that money comes around, what are they going to do with it?  Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again.  Sure, it won’t be anywhere near as bad as the current one, but it’ll be there.  If only we could teach people to be responsible consumers.  To not buy what they cannot afford, and to only spend what they earn or less.  If we could do that, then they wouldn’t need those incentives to buy a home.  They might actually be able to afford it without them.