What A Refinance Means To You And Your Family
If you are refinancing your home to consolidate high interest debt from credit cards and other unsecured loans, the refinancing should be part of a complete financial plan for your future. Refinancing will probably increase your monthly mortgage payment while it eliminates monthly credit card bills.
A refinance where you remove equity means a higher monthly payment in many cases. Most people think they can handle it and then run up the same high interest bills they had before. Now they are faced with higher monthly mortgage payments and the same credit cards bills that caused them to refinance in the first place. If you have refinanced from an adjustable rate mortgage to a fixed rate mortgage, at least your payments are fixed over the life of your loan. No sudden rise in payments means you can stick to a monthly budget.
If you are getting a refinance to consolidate your debt and you switch to an FRM, there may be little to spare. This is the time to budget your money wisely so life can go on albeit less comfortably but still decently. Everyone in the family will have to pitch in and understand how they can help to achieve the goal.
If you are earning $5000 a month and you have to live on $4000 monthly, you have to let go some luxuries e.g. dining out, enjoying nightly home movie marathons, shopping, and filling up your car’s tank. The grocery list has to be adjusted too. All these sacrifices will go on for years, so are you ready for a refinance?
Getting a part time job for extra income will probably not bridge the gap in your expenses. In addition it will take you away from your family. The answer is not to produce more income, it is to learn to live with less. Everyone in the family has to learn that you have to live within your means. It’s a good lesson to teach your children and will serve them well in the future.
Each member of the family should understand the budget and why it is necessary to curtail their spending. Everyone should participate with ideas on how the family can save money. Maybe the kids can take their lunches to school instead of buying lunch everyday. Mom could do her nails herself instead of going to the salon.
Explain to your children that they are going to have to make sacrifices now so that the entire family can have a better future. Teach about living on a budget and not always having everything they want. Don’t give in to impulse at the check out counter and spend that dollar or two. Those dollars add up faster than you may think.
People also make the mistake of ignoring life insurance and retirement plans just because they have a refinance. Save that extra for your insurance and retirement. You will need the money if there is an emergency you need to live on a retirement checks when you have fully paid your refinance.
To repeat, during those thirty years while your refinance is in effect, live on less; give up the “expensive” good times. But then you can be creative and have inexpensive fun with your family and friends. At the end, you have your home, your retirement pension, and a secure lifestyle while you children have finished school and have lives of their own.
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