ReduceDebtIncreaseWealth.com welcome and Mr. Chuck here. This week we're going to talk about refinancing that mortgage loan consolidations and debt cancellation services, what you should do what you should avoid. But before we get started with that, we need to remember what our plan is. You want to reduce your debt as quickly as possible with the least amount of expense or cost. So with that said, should you refinance your mortgage or not? But first, I want to remind you just stay true to your plan. And the plan is keeping track of all your finances know how much is in your checking account. And if you have any extra money or discretionary money, transfer that to your savings account. If you're not doing that, you're in trouble. And by now you should have called and renegotiate My view terms, what you've been paying for maybe cell phone, cable, internet streaming, you need to find better prices for the things that you use on a regular basis. If you're not using things, you need to cancel those services or you'll never get out of debt. We're trying to reduce your spending so we can apply that money to your debt. Now, should you refinance that mortgage? I would say years ago when interest rates were 12% 8% 6%, definitely if the interest rate drop 2% 1% at least one and a half percent, and you can avoid some of the closing costs or if he got closing costs wave, definitely do it. But you must avoid rolling in your credit card debt and then increasing the amount you owe. on your mortgage, your credit card debt is unsecured debt. If you default on that credit card, the worst thing they're gonna do is cancel that card service. Maybe turn it over to collection and try to get some money out Yeah. But they have nothing as collateral that they can force you to sell or they can foreclose on. So with that said, If you something happens, and you can afford to pay your mortgage, you want to try to keep your mortgage payment as low as possible. Also, if you've been in your house for five or six years, you want to try to get a terms the length of the mortgage shortened down, if you started out was a 30 year mortgage, you've been there for years. You want to try to get a 25 year mortgage. You know, you want to refinance a lesser amount at that. itself will help reduce that monthly payment. So that's my thoughts on that. Remember the plan, you want to reduce the debt as fast as possible. If you keep increasing your mortgage and keep on a 30 year mortgage, how's that reducing your debt? And how's that getting? How's that getting out debt faster. So with that thought, I have an article that I'm gonna read about refinancing. And you're probably been wondering why I keep reading these articles. Well, the main reason is, it gives me some credibility. It gives me some backup of what I'm, you know what I'm talking about. So with that said, here we go. I have a sponsor to try to offset some of the costs of this podcast. So that's what I like to talk about next. If you take vitamins, it should be taken isotonic liquid, it gives you rapid absorption. It's fairly easy to swallow, you get highly concentrated nutrients when which gives you the magic maximum benefits. It's much better than the pill vitamin, because it gets into your system at a much faster rate and more of the vitamin gets into your body where your body can use it. I've been using it for five years now. It's highly recommended it. Learn more about isotonic vitamins, go to my website, Reduce Debt, Increase Wealth.com dot buzzsprout. com, upper right hand corner, click on the heart and I'll take you to an isotonic website which belongs to my wife and help support to show thank you very much how to know when to refinance your mortgage from Bank Rate written by Libby wells when mortgage rates fall as they have in the first quarter of 2020. Many homeowners refinance their loans. refinance activity is up dramatically over the last year. It doesn't mean it's always a smart move. Knowing what When to refinance your mortgage is the trick. Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, it's a good decision. And with rates this low, even people have fairly new mortgages may be able to benefit from refinancing when it's a good idea to refinance your mortgage. If you can shave one half to three quarters of a percentage point off your mortgage right by refinancing, you should look into it says Greg McBride, CFA CHIEF FINANCIAL financial analyst for bank rate. Just be sure the cumulative savings on monthly payments is enough to offset the cost of refinancing. If you're planning on moving in the next year or two, it may not mortgage interest rates are determined by market factors including the yields on long term treasury bonds and of course, the best rates and terms Go to those with the best credit. So the question of when to refinance. It's not just about interest rate. It's about your credit being good enough to qualify for the right refinance loan, your financial goals, how long you plan to stay in your home, how much equity you have in the home, and your overall financial conditions are important consideration when it comes to refinancing. Ask yourself the right questions to help you get started. Is refinancing worth it and how does refinancing work? There are a variety of ways to refinance your mortgage. Finding the right loan depends on your goals. You might want to switch from an adjustable rate mortgage to a fixed rate loan that has a steady monthly payment. Or you may want to shorten the term alone from 30 years to 15 years to save yourself a bundle and interest charges. I refi is also a way to get rid of private money. mortgage insurance after you reach 20% equity in your home, most homeowners offer a straight rate and term refinance that lowers their interest rates and give them a comfortable repayment term. Some customers want to lower monthly payments to free up money for other expenses, such as college tuition or auto loan, how much cash out mortgage refinance, other homeowners go with cash out refinance, in which they borrow more than they owe on the home and use the cash to retire credit card debt, pay for home renovation and other major expenses. wiping out credit card balances with lower interest loan can be a good move. But if you start racking up card balances again, you're setting yourself back and increasing your risk. your mortgage is that debt secured by your home. If you start missing mortgage payments, you could lose your home to foreclosure a borrower should consult with a mortgage professional to determine if their financial needs are best suited for cash out refinance versus other forms of credit says Richard Lew, mortgage consultant for seed to financial Corp, a San Diego based mortgage broker, how long does it take to recoup the cost of refinancing? The interest rate is not the only cost away when you consider whether refinancing is worth it, there are costs to close a refi loan and they can be steep. Expect closing costs to total 2% to 5% of the principal amount of the loan. If you borrow 200,000 in closing costs are 3% of that you'd be owing $6,000 at closing. Rather than require all that money up front. Many lenders let you roll the closing costs into your principal balance and finance them as part of the loan. Decide whether refinance makes sense. calculate how long it would take for the cost of the mortgage refinance to pay for itself. If you're planning to sell the house before your break, even refinance and might not be worth it. If our borrowers refinancing strictly to lower monthly mortgage payments and closing costs are 20 $400 that borrowers are expected to save at least this amount in interest payments for the duration they plan to have the loan says Lou to determine your break even point divide the total closing costs but amount you save each month with your new payment. How to calculate your breakeven point for closing costs. Let's say your new mortgage saves you 192 a month and costs closing costs are $3,000 3000 divided by 192 a month in savings 15.6 months to break even if you plan to sell a house before your break even refinancing is not a good strategy example a mortgage refinance. Let's say you took out a 30 year mortgage for 150,000 a fixed rate of 6%. Your monthly payment is $899 over the life of the loan, you'll pay 300 $23,755 including $173 $755 in interest, five years into the loan, you paid $10,418 towards the principal and 43,541 and interest. Now you want to refine the remaining $139,581 of your principal balance with a new 30 year fixed rate loan of 4.5%. Using bank rates Mogi mortgage refinance calculator you can figure out whether this would be a money saving move. Your new loan was slashed your monthly mortgage payment by $192 to 707. over the life of the loan you'll pay $254,605 of which $115,024 would be interest, add in 53,009 59 and principal and interest you paid in the five years on their previous mortgage and your total cost would be three Hundred 8564 including 158 565 and interest by refinancing and not only lower your monthly payments significantly, you see a long term savings of $15,190 in interest. How long does it take to refinance a mortgage at time it takes to refinance depends on your lender as well as how long it takes to complete inspections, appraisals, credit checks and other requirements. But the Internet has generally simplified the process. Many lenders websites allow you to read about different loan products, compare interest rates, fill out loan applications and submit documents. Within the past few years technology has streamline the mortgage process tremendously, says Lou. The online applications mobile documents scanning apps and E signatures borrower can perform most tasks without printing a single document. Most refinances can be closed within 30 days. Use bank rates more Already calculate to compare your own loan scenarios. See what happens when you input different mortgage terms in years or months. Reveal the amortization schedule, see how much total interest you would pay good credit can save you a lot of money on your mortgage, again from bankrate.com. This article made some very good points. First of all is the type of mortgage Are you currently have? Do you have a variable rate mortgage, where the interest rate is adjusted up or down depending on what the interest rate is doing from the feds? If that's the case, I highly recommend trying to lock in a fixed rate mortgage. The rates are low now. So you never know maybe they're not going to go up for two or three years but in the next five to 25 years, there definitely could go up. Remember when I got my first mortgage, it was 12 and a quarter percent. I've been on that. downhill slide ever since that that's going to change, it's just a matter of time. If you have a balloon mortgage, well, I would refinance that as soon as possible because five years is a short period of time, then you have to refinance it again. It's a good time now, so why not get it done. Also, if you have more equity in your house, if the value of your house has gone up, you got at least 20% or more equity in the house. If you refinance, you'll get out of paying a principal mortgage insurance, and that could save you some money, maybe hundred hundred $50 a month that could go towards the principal, or it may be into your pocket. So yeah, so there's some good things. Remember, look around, tried to find a lender that's not going to charge you a whole lot of money to refinance because they're gonna roll that in and increase your debt and that's what you're trying to avoid. The last time I refund Finance was with the bank I have my checking and savings account with, there was no closing costs at all. It was quick and easy. And I got it down to a 10 year loan with $500 a month payment. So I've been paying on that for a while and I got my balance down. So that really helped out a lot. So now let's talk about debt consolidation. And I don't mean by refinancing your home and rolling all your credit card debt in there, because that's you just setting yourself up for trouble because now you got credit cards that are paid off, unless the mortgage company required you to close those credit cards, those cards if they're still open as you're attempting to start using them, and you can just get right back in the same problems you were before. So I highly discourage you from rolling your credit card debt into your mortgage. As I said before, you don't want your house as collateral for unsecured debt. debt consolidation. If you don't know what that is, you're taken out a new loan to pay off old loans. And a lot of people do that to pay off a bunch of high interest rate credit cards, and they maybe get a five year or 10 year loan, maybe through their local bank at a lower rate, maybe at five or 6%, similar to what a car loan would be. And that works great. A lot of times when they do that, though, might require you to close down some of those credit cards, or pay them off and they'll close them down for you. And the long term it could help your credit rating but in the short term, your credit rating is going to take a hit. And you're going to have less credit cards to use. So you're going to be forced more into paying cash and your checks, using your checking account and not going staying within your budget. That's it. Guess what I'm trying to get out of there. You know, it's kind of forced you to quit living on those credit cards. Remember your plan, quit creating new debt. And by rolling that over, maybe you're creating a new debt, but maybe you're getting rid of four or five old debt could be a good thing. I tried to avoid that. I never done that. I never got never got a term loan and to pay off credit cards. But what I have done in the past is when I got a credit card, pay down the zero and they sent me some literature in the mail saying oh 18 months, interest free, no interest for 18 months, no interest for 12 months. It's a balance transfer and a credit card or offer if you have a credit card it was a zero balance. They may offer you a balance transfer with 12 months 18 months, no interest, but they're gonna charge you 3% some of them charge you 5% I used that, and it works great. And you can really reduce the amount of interest you're paying. So if you reduce the amount of interest your pan, you got to look at, okay, if I transfer $2,000 I pay 5% it's gonna cost me I don't have the math in my head right this minute, but it's gonna cost you say $100 How long is gonna take you and enter savings to pay that off? I think I figured it out. It was like one and a half months. So I went ahead and I did it. Now you got to remember, if you go past that 12 month, grace period or the 18 months with no interest, they're gonna nail you. They're gonna tack on a whole bunch of interest and you want to avoid that. Only transfer credit card balances to that card. For The amount that you can pay off in that time period that they're giving you that grace period, say it's a year, transferred $3,000 over, make your payments get paid down to zero in a year. And lo and behold, you know, if they're going to do, they're going to send you that same offer again. And you can do it again. So that was that's a big tip. That's what I use. There's I heard other people, other financial experts saying, don't do that. It's not a good deal. But remember, look at what you're paying in interest. If they're charging a 36 36% interest, you're paying a lot in interest. If you can get a part of that balance over to no interest, and you can pay it off in that same amount of time that they're giving you, then why not do it? I did it work good. It helped reduce my interest. What happens when you reduce your interest you pay less you pay less interest. You apply more to your balance your principal. So you're gonna pay even more or less interest. It's a snowball effect. Again, I want to state that. So that's all I have really about loan consolidations, other than loan cancellation companies. I've never done it. I stay away from them. It's a bad deal. They're gonna charge you a percentage, and an attorney is gonna file bankruptcy. He's gonna force you he's gonna ask you to pay him before he filed bankruptcy. So I never did bankruptcy. I never did loan debt cancellation. You know, they make it sound great, but they're going to charge you money. They don't they're not working for free. And a debt cancellation company is going to charge you 15 to 20% of what you owe. And then they're going to make they want you to pay them first and they're going to take their fees first and then I don't know I don't know what how happens. But if they don't pay those bills, and they're gonna harass you, and you got creditors calling Yeah, I don't know if all that's gonna work out too good. But you know 15 to 20% is pretty healthy amount of money, especially if you owe $20,000. That's like $4,000 and that's $4,000 you could use to apply it to your, to your balance your your principal amount and to reduce your debt down. So with that said, I have an article coming up, that's going to talk about loan consolidation is going to explain it and it's going to talk about debt cancellation companies and why you should not use them. Truth about debt consolidation RIT David ramsey.com getting out of debt, the truth about deck consult your deep bit. You're in deep with credit cards, student loan payments, and carloads, minimum monthly payments are doing the trick help next your debt and your flippin scared. Something has to change and you're considering debt consolidation because the Laura one easy payment, and a promise of lower interest rates debt sucks. But the truth and debt consolidation loans and debt settlement companies suck even more. They don't help you slay mammoth amounts of debt. In fact, you end up paying more and staying in debt longer because of so called consolidation. Get the facts before you consolidate your debt or work with a settlement company. Here are the top things you need to know before you consolidate your debt. debt consolidation is a refinance loan with extended repayment terms. Extended repayment terms means you're be in debt longer. a lower interest rate isn't always a guarantee when you consolidate debt consolidation doesn't mean debt elimination, debt consolidation is different from debt settlement. Both can scam you out thousands of dollars. What is debt consolidation. debt consolidation is a combination of several unsecured debts, payday loans, credit cards medical bills into one monthly bill with the illusion of a lower interest rate, lower monthly payment and simplified debt relief plan. Here's the deal. debt consolidation promises one thing but delivers another. That's why the dishonest companies to promote too good to be true debt relief programs continued to rank as the top consumer complaint received by the Federal Trade Commission. Here's why you should skip that consolidation and OPT instead to follow a plan to helps you actually win with money. When you consolidate, there's no guarantee your interest rate will be lower. The debt consolidation loan interest rate is usually set at the discretion of the lender or creditor and the depends on your past payment behavior, behavior and credit score. If you qualify for a loan with low interest, there's no guarantee the rate will stay low. But let's be honest, your interest rate isn't the main problem. your spending habits are the problem. lower interest rates on debt consolidate, some consolidation loans can change. This specifically applies to consolidate debt through credit card balance transfers to a tie slightly low interest rate is usually an introductory promotion and applies for certain periods of time only their rate will eventually go up. Be on guard for special low interest deals before or after the holidays. Some companies no holiday shoppers who don't stick to a budget tend to overspend them panic when the bills start coming in. And other loan companies will hook you with low interest rates, then inflate the interest rate over time leaving you with more debt. consolidating your bills means they'll be in debt long. In almost every case, you'll have lower payments because the term of your loan is prolonged, extended terms mean extend the payments, no things Your goal should be get out of debt as fast as you can. debt consolidation loan doesn't mean that elimination. You're only restructuring your debt, not eliminating it. You don't need debt readmit arrangement. You need debt re formation, your behavior as money doesn't change most of the time. After someone consolidates their debt, the gret debt grows back why they don't have a game plan and to pay cash and spend less. In other words, they haven't established good money habits. for staying out of debt and building wealth. Their behavior hasn't changed, so extremely likely, that go right back into debt. How does debt consolidation really work? Let's say you have 30,000 in unsecured debt, thank credit cards, loans, car loans and medical bills. The debt includes a two year loan for $10,000 at 12%, and a four year loan for $20,000. At 10%. Your monthly payment the first loan is $517, while the second or the payment on the second is 583. That's a total payment of 1100 dollars a month. If you make monthly payments on them, you'll be out of debt and 48 months and have paid a total of 330 $4,821. you consult a company that promised or lower your payment to $640 per month, and your interest rate is 9%. By negotiating with your creditors and rolling the two loans into one sounds great, doesn't it? Who wouldn't want to pay $460 less per month and payments. But here's the downside. It will now take you 58 months to pay off the loan. And now the total loan would jump to $37,103. So that means you shell that out. 2282 more to pay off the new loan, even with the lower interest rate at 9%. This means your lower payment has caused thousands more to words for you ripped off credit card debt eating your lunch. What's the difference between debt consolidation and debt settlement? There's a huge difference between debt consolidation and debt settlement. Although often the terms are used interchangeably. Pay attention here because these crafty companies will stick it to you if you're not careful. We have already covered consolidation that's a type of loan that rolls several unsecured debts into one single bill. That settlement is different debt settlement means you hire a company to negotiate a lump sum payment with your creditors for less than what you owe. debt settlement companies have a charge a fee for their services. Often the fee is anywhere from 15 to 20% of your debt. Think about it this way. If you 50,000 your settlement fees would range from 7500 to 10,000. So basically your debt would go from 50,000 to 57,000 or 60,000. If that's not bad enough fraudulent debt settlement companies often tell customers to stop making payments on their debt and instead pay the company once their fee is accounted for. They promised to negotiate with your creditors and settle your debts. Sounds great, right? Well, the debt settlement company usually doesn't deliver on helping you with your debt until after they take your money. They leave you on the hook for late fees and additional interest payments on debt they promised to help you pay. That settlement is a scam and debt relief company that charges you before they actually settle or reduce your debt. It's in violation of the Federal Trade Commission. Avoid its debt settlement companies at all costs the fastest way to get out of debt. When you consolidate your debt or work with a debt settlement company you only treat two simple Have your money problems and never get to the core of why you, you had issue issues in the first place. You don't need to consolidate your bills, you need to pay them off. To do that you have to change the way you view debt. Dave says personal finance is 80% behavior and only 20% had knowledge. Even though your choices landed you in a pile of debt, you had the power to work your way out, you just need the right plan. The solution isn't a quick fix, and it won't come in the form of better interest rate, another loan or debt settlement. This solution requires to roll up your sleeves and make a plan and that's from Dave ramsey.com. My thoughts are if you have an unpaid credit card, a credit card with a zero balance. And that credit card is offering you a balance transfer where they're going to charge you 3% or less than I'd take them advantage of it if they're going to give you a year to 18 months to pay for it. And I'm assuming that you got your spending under control, and you're not going to go wild. And you're gonna be able to pay that off in that time period where the interest rates are still zero. And remember, go back and look at how much interest you're going to save and how long it's going to take you to pay that that balance transfer fee off by paying less in interest. New episodes are released weekly subscribed so you can follow Mr. Chuck's journey to reduce in debt and financial freedom as you do the same. If you liked this podcast, please share Transcribed by https://otter.ai