photo credit: bloomsberries
It’s a New Year, and at this time of year many people are thinking about ways to save more money this year. You may be tempted to slash your grocery budget by only cooking at home, or cut back on monthly expenses like car insurance. If you haven’t tackled your biggest expenses though, this effort is misguided.
When we first started on the path to fiscal fitness we started with tracking our expenses. We followed that with our first No Spend Month. Since I wasn’t spending money, I spent a lot of time making a detailed budget that included everything we had spent on in the last year. I was shocked by the money we had spent in some areas, but looking at out budget it quickly became apparent that our largest expenses were our mortgage and car payments.
Around this time rates started dropping, so we decided to take a look at mortgage rates to see if we could reduce our biggest monthly expense. Rates had dropped but to enough to justify a refinance. A few months later rates plummeted, and we were looking at refinancing at a rate as low as 5%. The issue was our mortgage lender led us to believe they could get us a lower rate, and we paid to have an appraisal, and then they turned around and said we didn’t qualify. We started exploring other options and found our credit union could offer us great rates (5%), and the customer service was fantastic.
If you haven’t refinanced yet, use this simple rule of thumb. Closing costs should not exceed 12 months of savings for your mortgage. For instance: a savings of $300/month means you shouldn’t spend more than $3,600 on closing costs.
Despite talk of rates rising, you can still find rates hovering around 5% if you have good credit, and a good amount of equity. If you are struggling though, call your lender and see what they can do. Some companies are able to work with you depending on your situation, while others won’t work with you until you miss several payments.
Have you refinanced in the last year? Are you thinking about refinancing? Or are you a renter? Learn more about negotiating your rent from Mary Pilon.