Enrich Your Life Coaching

Category: Personal Finance

  • Four Steps To Overcoming Financial Hardships

    Four Steps To Overcoming Financial Hardships

    009

    Most of us have times in our lives when financial challenges threaten to overwhelm us. Whether it’s an unexpected car repair, or whether it’s a job loss, financial setbacks happen in most of our lives. At these times, it’s tempting to give up and sink into despair — especially if the setback is a large one.

    However, you can overcome your financial challenges. It takes hard work and determination, but it is possible. Here are 4 steps to take as you work to overcome your financial challenges:

    1. Don’t Do Anything Rash

    First of all, take a step back. In the first blush of a financial setback, the instinct is fight or flight. You want to do something, and do it quickly. However, these types of snap decisions, made when you are under emotional stress, are rarely good decisions. Instead, you are better off stepping back, taking a deep breath, and putting off action. Don’t rush to withdraw money from your retirement account, or make any other similarly large decision. You’re already facing difficulty, and a rash move could make it worse.

    2. Take Stock of Your Resources

    Now that you have taken a step back, it’s time to consider your resources. What do you have available to you? Do you have an emergency fund? Can you cash in some stocks? Do you have relatives willing to help you out? Do you have the option to get a part time job? Is there a side hustle you can start? Can you sell a few items to raise extra cash?

    Take stock of your skills and abilities, as well as number your assets. Once you know what you have, you can start thinking about taking effective action.

    3. Make a Plan Based on Your Resources

    Create a plan to address your situation based on your resources. If you have been laid off, one of your resources is unemployment. Go down to the appropriate office and apply for benefits. Then make a plan to start a side hustle, look for a job, and take other action. In some cases, your plan is as simple as selling some items collecting dust in the attic so that you can buy a new appliance to replace a broken item. Create a plan based on your situation and resources. You’ll be surprised at how much better you feel just for having a plan.

    4. Execute Your Plan and Get Help if Needed

    Now it’s time to put your plan into action. The severity of your financial setback will determine how long your plan needs to be in effect. Look for support as you implement your plan. Get help from friends and family. Devise rewards to mark your progress. Stay motivated and acknowledge how far you’ve come. Eventually you will overcome your financial setbacks and start down the path to financial freedom.

  • Is Refinancing a Mortgage Worth It?

    Is Refinancing a Mortgage Worth It?

    The interest rate pendulum has swung in favor of homeowners again.

    A steady decline in recent weeks brought down the average rate for a 30-year fixed home loan below 4 percent to 3.92 percent this week, the lowest level in more than a year. As recently as January, the average was 4.53 percent, according to mortgage giant Freddie Mac.

    That’s good news for homeowners who are locked in at a higher interest rate and weren’t able to refinance before rates began ticking up last year. The decline in mortgage rates has spurred a surge in mortgage refinancing. Applications reached their highest level since November 2013 last week, according to the Mortgage Bankers Association.

    A reduction in your mortgage interest rate can translate into significant savings. The key is ensuring they aren’t outweighed by the charges and fees involved.

    Mortgage

    “You want to be careful to do the math and be sure you’re coming out ahead,” said Gary Kalman, executive vice president at the Center for Responsible Lending.

    Here are some tips to help you determine whether refinancing your mortgage will pay off:

    1. UNDERSTAND THE FEES

    Lenders typically charge fees for the mortgage broker’s services, credit reports, a home appraisal and title insurance, among other costs.

    To get a sense of the total costs, start with the “good faith estimate.” It’s a form that lenders are required to provide that details the projected costs associated with the loan.

    Although certain costs of the loan can’t change, including the origination or broker’s fee, costs such as title fees may change until the loan is locked, meaning the interest rate is set, notes Kurtis Baker, a wealth management advisor at Certified Wealth Management & Investment LLC in Princeton, New Jersey.

    The loan officer should also be able to help determine what your total monthly payment would be after the refinancing.

    2. GET A LOW-ENOUGH RATE

    The general rule of thumb is that borrowers need to shave at least 1.5 to 2 percentage points from their rate in order for the refinancing costs to be worthwhile.

    To qualify for the best rate on a mortgage refinancing, borrowers must have proof of income and have equity in their home. About 20 percent equity is ideal, though some lenders will require as much as 30 percent for jumbo loans, said Greg McBride, chief financial analyst at Bankrate.com.

    3. DO THE MATH

    Don’t be fooled into thinking that you’re getting a better deal when it’s simply a new loan with a longer term, warns Timothy Watters, a certified financial planner at Watters Financial Services in Paramus, New Jersey.

    To avoid this, tally up how much you’re paying now in principal and interest and multiply it by the number of months left on your loan. Then do the same calculation using the figures under the new loan.

    “If there’s a substantial difference, it may be worthwhile to refinance,” said Watters. “If there’s not, it may not at all be worth refinancing.”

    Online calculators can help you estimate whether the savings in a refinancing add up in your favor. Try this one from Bankrate: http://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

    4. DETERMINE WHEN YOU WILL BREAK EVEN

    Even if your refinancing will lower your monthly payment, it will take time to recoup your expenses. So think about how long you plan to stay in your home.

    For example, refinancing from a 5.5 percent interest rate to 4 percent would save $180 a month on a $200,000 mortgage. But the fees — averaging around $2,500 — mean it would take about 14 months to break even.

    To estimate how long it will take for your savings to offset the refinancing costs, divide the estimated costs by the projected annual interest savings.

    Remember to factor in loan points, which borrowers can buy to lower their interest rate further. One point equals 1 percent of the loan amount.

    As long as that is comfortably shorter than the time you plan to stay in the home, refinancing could be a good choice, Baker said.

    The Federal Reserve has a more detailed calculator for determining the break-even point on a mortgage refinancing here: http://www.federalreserve.gov/pubs/refinancings/#breakeven

    5. SHOP AROUND

    Get quotes from several banks and ask that they put their offers in writing, including an estimate for the closing cost and any extras, like loan points.

    Some lenders will allow you to roll the refinancing fees into your loan, sparing you upfront costs. However, this will increase how much you owe — and pay interest on — for the life of your loan.

    Ask that the lender provide you with a comparison of the loan costs paid upfront and rolled into the loan.

    Is Refinancing a Mortgage Worth It?