Is now a good time to refinance my home?
Dear Friends,
Thanks to those of you who have sent in your request for the Surviving Financial Meltdown book. I’ve been so encouraged by the response and by the feedback we are getting.
As I continue to hear difficult news of layoffs and other poor economic news, I am reminded that we are not “home” yet and that our concerns on earth will all look different in the light of eternity when we are with Him. In a recent radio interview, pastor Rick Warren said, “In a nutshell, life is preparation for eternity. We were not made to last forever, and God wants us to be with Him in Heaven. One day my heart is going to stop, and that will be the end of my body – but not the end of me. I may live 60 to 100 years on earth, but I am going to spend trillions of years in eternity. This is the warm up act, the dress rehearsal. God wants us to practice on earth what we will do forever in eternity. We were made by God and for God, and until you figure that out, life isn’t going to make sense.”
With Pastor Warren’s thought in mind, what is the real value in making a decision about re-financing? I’ve always taught that there are four basic questions to ask when making debt decisions, and I believe that these four questions help us to explore spiritual issues such as stewardship, wisdom, and relationship. Every decision in our life, no matter how mundane or concrete, can be a place for the Holy Spirit to do a work of eternity in our hearts and homes.
The four questions I use for making a decision about debt are:
May God’s peace encourage you as you pursue financial wisdom and depend on His Truth.
Blessings,
Ron
Click here for the video transcript
Thanks to those of you who have sent in your request for the Surviving Financial Meltdown book. I’ve been so encouraged by the response and by the feedback we are getting.
As I continue to hear difficult news of layoffs and other poor economic news, I am reminded that we are not “home” yet and that our concerns on earth will all look different in the light of eternity when we are with Him. In a recent radio interview, pastor Rick Warren said, “In a nutshell, life is preparation for eternity. We were not made to last forever, and God wants us to be with Him in Heaven. One day my heart is going to stop, and that will be the end of my body – but not the end of me. I may live 60 to 100 years on earth, but I am going to spend trillions of years in eternity. This is the warm up act, the dress rehearsal. God wants us to practice on earth what we will do forever in eternity. We were made by God and for God, and until you figure that out, life isn’t going to make sense.”
With Pastor Warren’s thought in mind, what is the real value in making a decision about re-financing? I’ve always taught that there are four basic questions to ask when making debt decisions, and I believe that these four questions help us to explore spiritual issues such as stewardship, wisdom, and relationship. Every decision in our life, no matter how mundane or concrete, can be a place for the Holy Spirit to do a work of eternity in our hearts and homes.
The four questions I use for making a decision about debt are:
- Common Sense Question: Is the economic return greater than the economic cost? Or, when I borrow money, does the purchased item either grow in value or pay an economic return greater than my cost of borrowing? In most cases, a home will increase in value. We have been in a difficult real estate market for the last several months, but refinancing to a lower payment may make it more feasible for you to wait out the market transition so that you can get an economic return on the home down the road. Thinking through the answer to this question trains us to make wise stewardship decisions, recognizing that it would be foolish to use God’s resources in a way that would knowingly diminish them.
- Repayment Question: Is there a guaranteed way to repay? If you had to move and quickly sell your home, would you be able to get at least the amount that you owe out of the house? If so, you have a guaranteed way to repay. Thinking through the answer to this question also reinforces wise thinking and good stewardship of God’s resources.
- Peace Question: Do I have peace of mind and spirit about the decision and is it in violation of any ethical or spiritual principles? Taking time to analyze your motives and the integrity of your decision will open the door to interacting with God about His will for you in this area as well as His perspective on your spending and borrowing decisions.
- Unity Question: Are my spouse and I unified about the borrowing decision we are making? This question may be the hardest since it opens the door to communication and relationship patterns in your marriage. As I’ve lived with Judy for over 40 years, I’ve come to accept more and more the reality that my sanctification is one of God’s main purposes for me within my marriage. A reason to communicate better and understand more fully in my marriage is a great opportunity to practice living in light of God’s perspective and grace.
May God’s peace encourage you as you pursue financial wisdom and depend on His Truth.
Blessings,
Ron
Click here for the video transcript
This article and video provide great wisdom in consideration of refinancing a home mortgage. One factor I would like to add is that not only does refinancing provide the potential opportunity to reduce the interest rate, but also the option to reduce your term of mortgage. A lower interest rate plus a shorter term potentially can result in not only a lower payment, but also a savings of thousands of dollars in interest.
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Great topic, especially at this time. Would have liked to have had a reminder to not take on more debt during the refinancing, which is what many folks are doing. Thanks so much for these videos. Great information.
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One other factor that could be added is the savings of paying extra towards the principle every month or even making a one time payment at the end of the year or with your tax return towards the principle. It can really bring down the interest you end of paying dramatically. You can use a mortgage calculator on any financial website so you can actually see it.
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I agree with Cindi with paying extra on the principal every month, ( We could manage $50 extra per month), then when the income tax refund came, We took $1000 and applied to the principal. When We purchased our second home, we were able to take out a 15 year fixed rate loan at a low interest rate. The monthly payment was exactly what we were paying on our first house with the $50 extra and the $83 ($1000 divided by 12 months). We ended up paying our mortgage off this last Summer ( 1 year ahead of schedule). It's a great feeling to have our home paid off as the economy is doing what it is. Have a plan and work your plan. Make sure it is a fixed rate loan, no ARM's or Interest only loans. Also, do not take extra money to do home repairs etc. Only refinance on what is owed. 15 or 30 years is a long time and a lot of interest to pay for new windows, floors,or other home improvements.
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We are retired, no debt outside of a mtg.(107,700. @ 5.75% fixed) and another loan for 12,850. @ 2.75% tied to prime. We are currently making 1 additional mtg. payment/yr. to reduce our loan but feel convicted to get completely out of debt as our savings is dwindling in the current market. We have 2 offers for refinancing at 5% or lower fixed for 15 or 20 yrs. combining our mortgage and the other loan at a lower monthly payment than we make now. Would it be a wise decision to refinance with the intention of increasing our payment on the principal in order to reduce the loans at a faster rate?
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I have been a mortgage consultant for over 30 years and I disagree somewhat with Ron's two rules. I used to use the 2%-5 year rule of thumb myself; however, the economics of refinancing can be beneficial with as low as 1/4 of 1% in rate reduction with immediate breakeven. I admit these cases are very rare, but they do disprove the rule of thumb. Personally I like to see at least a $100 payment reduction with less than 3 years to recover the cost. The major mistake I see people make is lengthing the term and not figuring in the cost of extending say 27 remaining years to 30.
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Great topic, especially at this time. Would have liked to have had a reminder to not take on more debt during the refinancing, which is what many folks are doing. Thanks so much for these videos. Great information.
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Awesome tips. I’ll be passing this post on for sure
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