Home Refinancing

What better time than now to refinance your existing loan! My wife and I just refinanced our 30 year 6.000% fixed home loan to a 15 year 4.875% loan. Our previous payment was $1301 per month, including PMI and escrow. With our new 15 year loan, our payment only went up $117 to $1418 per month, and we were able to drop the PMI (the appraisal valued our house at $(yet to be determined)). Thinking about refinancing your home or car loan? With interest rates this low, now's the time to do it.
You may ask why did I refinance from a 30 year loan to a 15 year loan with a higher payment, when I could have picked another 30 year loan with a smaller monthly payment. The reasons are simple:

• We're already comfortable paying $1300 a month on our existing mortgage
• We can afford the extra $100 per month
• A 15 year loan offers a smaller interest rate
• The 15 year loan will force us to pay off the loan 10 years faster
• We're getting out of the FHA loan we currently have (which has restrictions on carrying private mortgage insurance (PMI)) and into a conventional loan, so the $60 per month that was going to PMI will no longer be an expense
  

Thoughts or comments? Post below.

UPDATE 1/27/2009: We cancelled the refinancing process, for the following reasons:

• Closing costs would have amounted to over $3500
• If we wrapped the closing costs back into our mortgage, it would take nearly 2 1/2 years to break even
• Our current plan is to pay off our non-mortgage debt first, so refinancing to focus more of our income on the mortgage was skipping a couple of steps in our plan
• We already have a fixed rate mortgage

I had to forfeit the $350 that they charged me on the first day I called and started the financing process. That's fine with me, because if we had closed, we would have owed about $3500 more in closing fees. If we had been in an adjustable rate mortgage, or planned on staying in our current home for more than 2 1/2 years, I probably would have closed the 15 year deal.

School Loan Payoff Letter

Last May I wrote a post about a milestone in my life, the day when I paid off my school loan. Just a couple of days ago, I got a letter in the mail from Nelnet, the company that managed my student loan. Before I opened the letter, my first thought was 'I paid the loan off, what did I forget?' I took a breath, and opened the letter:

Sweet!! I just got a diploma for graduating from USL (university of student loans). You can bet that I won't be going back to USL for my financial needs. From now on, I will be visiting my savings account (at a much better, 0% interest rate) for my family's educational needs.

Budget Planning Software

Do you find yourself with more month left at the end of your money, or if you're on a budget, I hope your have money left over at the end of the month. About 4 years ago, just after my wife and I bought our first house, we found ourselves running out of money at the end of nearly every month. With a pay raise at work and a written cash budget, we were able to turn that around, so that we now have money left over.

How much money is left over? Well, usually just a few hundred dollars. What do we do with this leftover cash? Usually it goes to pay down debt or we transfer it to savings. Lately, though, it has been accumulating in our checking account, in anticipation of paying for some recent medical expenses. But how does this month's daily balance actually compare to previous months?

I'm a visual learner. I like to draw diagrams at work to explain and understand programming concepts. I wanted to visualize my checking account the same way, so I wrote a piece of software, called "Budget Planner". It's a tool that graphs your checking account balance, and overlays one month on top of another. See the screenshot below:

I use this software to find how how the balance this month compares to previous months, and thus how much I have available to use to pay down my debt or put in savings.

You can download and use it for free. It requires the Microsoft .NET Framework 3.5, and credit for the graphing component goes to ZedGraph. If you need a short tutorial on installation and use, please continue reading.

Installation Instructions
The following steps will help you get this software up and running on your computer (tested on Windows XP and Vista only):

1. Download and install the Microsoft .NET Framework 3.5
2. Download and install Budget Planner
3. Double-click on the new "Budget Planner" icon on your desktop
4. The software should open with a blank graph

Import Data
The following steps will help you download a CSV (comma separated values) file from your bank's website, and import this file into Budget Planner:

1. Log into your bank's website (I currently have a Wells Fargo checking account)
2. Select your checking account
3. Choose the option to download account activity (Wells Fargo's website has a 'Download Account Activity' link)
4. Choose an appropriate date range, and choose Comma Delimited, CSV, Spreadsheet, or something that will produce a .csv file
5. Download the file to an appropriate location on your computer (i.e. My Documents)
6. Open Budget Planner by clicking on the link on your desktop or in your Programs menu
   
7. Click File - Import (or Ctrl - I)
8. Click the file open button (...) and select the .csv file you downloaded in step 5
9. Optional: set the starting balance (this can be obtained from the account activity screen in step 2), and click Next
   
10. Set the appropriate column indexes until the grid displays the correct info in the correct columns (i.e. the dates appear in the date column, the description appears in the description column, and the amount appears in the amount column) and click Next, and Finish
    
11. The grid and graph should be populated with data
12. Optional: you can right-click on the graph and select 'Show Point Values' to view data points when your move your cursor over one of the data points
13. Optional: to zoom, you can draw a selection box (i.e. click an area on the graph, and drag to another point on the graph)

Let me know if you have any questions, encounter any issues, or have any requests for features by posting in the comments below.

Health Savings Accounts (HSAs)

Traditional health insurance is the type of health insurance that most people carry. Traditional insurance includes monthly premiums paid by yourself, your employer, or, in most cases, both. To deter frequent doctor and hospital visits, you are also required to pay a copay of $15 or more per visit. Annually, it may cost you $6000 pre-tax ($500 per month * 12 months) for the monthly premiums, plus your co-pays.

Health savings accounts are a relatively new form of health insurance. Like traditional insurance, you pay a monthly premium (mine is $80 per month) into a high-deductible health plan (HDHP). You also have a set amount, pre-tax, withdrawn from your paycheck and put into a special savings account. Much like a flexible spending account (FSA), you can use the money in this account to pay for office visits, prescription drugs and other qualifying expenses.

Advantages and disadvantages of HSAs are below.

Advantages for employees:

• Money not spent within the year carries over to the next year
• You only have to worry about expenses up to the limits defined by your HDHP (for example, my limit is $3000 for my family, so if I reach my limit of $3000 in September, my HDHP pays the rest of my qualifying expenses the rest of the year)
• If you add more money to the HSA every year than you spend, when you retire you will have pre-tax money already set aside to pay for health insurance and health-related costs during retirement
• You lean to shop around for the best care and cheapest health-related services
  

Disadvantages for employees:

• At the beginning of the year, you could pay more out of pocket than you have available to withdraw from your HSA
• The full amount for office visits and prescription drugs must sometimes be paid, whether it is directly from the HSA or out of pocket and then reimbursed at a later date
• If you prefer or can only afford the $15 office visit, the HSA is not for you
  

Advantages for employers:

• It's cheaper for employers to sponsor HSAs with HDHPs. When I switched to an HSA in January of 2008, my employer's contribution to my health insurance dropped hundreds of dollars a month.

Advantages for insurance companies:

• Most employees won't meet their deductible, which means far fewer claims that must be paid to health care providers or drug companies (the cost of care is on the shoulders of the employee, up to their HDHP limits).

If given the option to choose between traditional and an HSA, consider your options. If you have an HSA, post your comments below.

Dave Ramsey's Baby Step 2

Pay off all debt, not including the house. That's Dave Ramsey's financial fitness baby step #2. Rather than explaining why it's a good reason to get out of debt, my wife and I have already decided that it's a good idea, and I want to explain how we're working on it.
On the right-hand side of this blog is a list of the 7 baby steps. Let's talk about step #. Over the last five years, we have accumulated nearly $31,000 in debt ($14,500 on a school loan and $16,500 on our Jeep Liberty). As of June, 2008, we have paid off the school loan, and have $13,000 remaining on the car loan.
Because we would like to move on to step #3, we have three options:

1. Continue to pay off the car loan, making the regular payment ($344 per month). The loan would be paid off in January 2012.
2. Make additional payments on the principal (adding $320 per month would shorten the length of the loan to March 2010).
3. Make additional payments and sell the car ASAP.

We've decided on option #3. We're planning to start paying nearly $700 per month on the loan. We'll also put it in a couple of classifieds websites, and when an offer meets or exceeds what we currently owe on the car, we'll sell it.
Now, we'll still need two cars. Once the Liberty is gone, we'll need to figure out how much we have available to spend on another car. It may be that we'll need to take out an auto loan for$2000 or $3000, which we would pay back in a few short months.

Conclusion
Our goal is not only to get out of debt, but to create a self-sustaining account that allows us to buy newer automobiles the rest of our lives.

The True Costs of Car Ownership

My wife and I have two cars: a 2000 Plymouth Neon, and a 2005 Jeep Liberty. We paid off the Neon back in 2001 or 2002, and it's been a dependable commuter car for me to drive to work. Our Liberty, on the other hand, is a nice vehicle, but we've decided to sell it. Why? Well, for one thing, we're upside down in our loan.

On the Liberty, we took out a 5 1/2 year loan for just over $18,000 back in 2006. We've paid it down to $13,500, but it's only worth about $11,000. We're upside down in the loan. Not only that, our newer, larger automobile has been more expensive in the following areas:

• Gas / fuel economy
• Maintenance
• Registration

Gas / Fuel Economy
According to Kelly Blue Book, our Neon is rated for 25 mpg for city driving. The Liberty is rated at 17 mpg for city driving. That's a difference of 8 miles per gallon. In other words, I could drive the Neon 100 miles on four gallons of gas, but it would require almost four gallons of gas to drive the Liberty the same 100 miles.

Maintenance
Both of our cars are gas-powered and in the four to six cylinder range, so costs the same to have the oil changed on either automobile. Tires, on the other hand, are larger and more expensive for the Liberty. At my local tire shop, I recently paid $100 per tire for the Liberty. Last time I put tires on the Neon, they only cost $70 per tire (not including wheel balancing, labor and alignment). For new tires alone, it's $120 cheaper for the Neon.

Registration
Our Neon only costs $118 for its yearly registration. Our Liberty, on the other hand, costs $188 per year. That's a difference of $70. State automobile registration is based on the current market value of the vehicle.

Conclusion
If you're in the market for your next car, remember to weigh in the true costs of ownership. These costs (new tires, alignment, etc.) are usually incurred when registration and inspection are due. Factor in these maintenance expenses, and you'll be able to make a better decision on your next car purchase.

Lease or buy your next car

Lease or buy? Looking through the dealership advertisements in my local newspaper, it looks like the only option nowadays is to lease. But is leasing best for the consumer?
First, let's consider the facts about leasing:

• Leases only apply to new cars
• New cars depreciate quickly the first 2-3 years (the car is no longer worth its retail value once you drive it off the lot)
  
• Leases include mileage and modification restrictions
• Penalties can be assessed at the end of the lease for wear and tear, excess mileage
• A lease consists of two parts, a depreciation charge and a finance charge (money that you will never see again)

Now, let's run some simple numbers. If you lease a car for the next 3 years, with an average monthly payment of $349. That's $12,564 that you paid over the three years. At the end of the 3 year lease, you have no car. Many people then sign another lease. Do this for 10 cars (30 years), and you have spent a minimum of $125,640 on car rentals, not including penalties and down payments.

What is the alternative? Buy a car you can afford. Most cars today last 10-15 years and over 150,000 miles if properly maintained. Many of these cars with 5+ years left are cheap enough that you could save for a few months and purchase one without a loan. Once you purchase a good, used car, put away some money equal to a car payment every month for your next car. For example, if you save for and buy a $4,000 car, after this initial purchase, save $400 a month. In 10 months, you will have $4,000 saved plus your $4,000 car. Sell your car and you will have $8,000 available for your next car. Continue to save, and 10 months later $12,000 will be available for your next car. Continue down this path, and you will be able to drive nice, paid for cars the rest of your life.

Chrysler $2.99 Gas Guarantee

$2.99 for gas? For real? Where do I sign up? Oh, I have to buy a new Chrysler automobile to qualify. So if I were in the market for a new car, would this be enough incentive to buy a Chrysler, Jeep or Dodge? Let's run the numbers:
According to http://www.jeep.com/en/refuel if you bought a Chrysler 300, which has an allowance of 1800 gallons over the span of 3 years. If gas prices average $4.30 over that three year period, Chrysler will end up paying $2,358 ((4.30 - 2.00) * 1800) over the course of three years, or $786 a year. If the price of a gallon of gas were to go up to $5.00 a gallon (highly unlikely in the next 3 years), they would end up paying $3,618 total. Their chart on the link above also lists other vehicles which qualify for this offer. Of course, you would receive the entire discount ($2,358 or $3,618) if you follow the rules 100% (using the same credit card every time to buy gas, waiting 6-8 weeks to receive your membership card, not all gas stations accept their membership card, etc.)
For new cars, manufacturers used to offer better rebates at the time of signing. This sounds like a marketing ploy that appears to be a response to media and consumer's concerns over the recent rise in gas prices.
As an alternative: pay cash for a reliable, used car that gets good gas mileage. You won't be 1) upside down in a new car, and 2) trying to follow the strict rules of the "Gas Guarantee" over the course of the next 3 years.

Good-Bye, Student Loan

Before attending graduate school at Utah State University in 2001, I was able to pay for college and the necessities by working full time. Once I started grad school, the pressures of more expensive tuition caused me to look for additional funding to make it through the rest of my education.

My wife and I took out $14,500 in student loans over the course of those two years. I continued to work and attend grad school full time while supporting my wife and new baby, and the loans meant we could still afford to drive our car, put food on the table and pay tuition.

Once I graduated, loan rates were excellent. I consolidated the two loans (each loan had an interest rate of 2.170%) into one loan, at an excellent rate of 0.625%, after dropping a point or so for signing up for automatic payments. We paid the $99 per month for nearly a year after I finished school. Off and on we would pay more than the $99 each month, but never with the intention of paying it off completely.

After attending Dave Ramsey's Total Money Makeover Live event on 5/17/2008, my wife and I talked and decided to step up and get rid of this student's debt. Today, 5/22/2008, we transferred the money out of savings and paid off the last $4,382 on the debt. What a relief!

Details from our lender's website. Notice the status in red:

Loan	Group ID: B Status: PAID IN FULL
School Name:CONSOLIDATION LOANS - NOT A SCHOOL
Lender Name:UTAH HIGHER EDUCATION ASSIS. AUTHORITY
Current Balance:	$0.00	Accrued Interest:	$0.00
Interest Rate:	0.625	Loan Type:	CONSOLIDATION
1st Disbursement Date:	10/28/2003	Total Amount Disbursed:	$14,500.00
Est Graduation Date:	10/28/2003	Convert to Repay Date:	10/28/2003
		Next Payment Due Date:	07/17/2016

Next, we'll be throwing any extra cash at our only remaining non-mortgage debt, our car loan. We plan on paying it off in the next 12 or so months (Dave Ramsey's baby step #2 from his book The Total Money Makeover).

Any of you have a debt payoff success story? Share it below.