You have a 30 year, fixed interest mortgage. Your job is secure, income steady and you are effortlessly paying on an auto loan. Regardless, the purse strings continue to be tight as managing expenses related to raising a family only keep rising. Is mortgage refinancing an option?
A question of priorities
It should be said that refinancing your mortgage to free up some cash for bad debt purchases is, in almost all situations, a bad idea. In effect, you are only squandering that freed up cash on negative investments that lose value over time. The question of refinancing should fit squarely into your financial strategy. There are no definitive answers to refinancing as each borrower represents his or her unique situation complete with particular needs. Examining how your short-term expenses meet your long-term goals might begin to shed light on your refinancing dilemma.
Refinancing to buy a new car or similar “bad debt” purchase
If your car has four wheels and an engine, drive it into the ground. If, however, you commute to work and your trusted mechanic assures you your clunker has merely a few days left, refinancing may be your best option. In this scenario, your job security is in imminent danger because you commute to work. When it is a matter of protecting your financial future, and you are confined by a fixed income, refinancing is a good option.
Your kid is a star; keeping him in books and instruments is expensive
We want to give our kids everything. So it only makes sense to refinance because investing in our children is congruent with our long-term aspirations. The misconception here is that our children are just like our other investments, and can be managed as such. Children, ultimately, become the product of their own hard work and their future is their own—not yours. Still, providing them with greater opportunity to capitalize on that future is a sound investment.
The difference here is a fine line. If you are considering refinancing to send your kid to a first-rate college, and he or she can get a similar degree from a state institution, ask yourself—who really benefits from this? Too often, we confuse our priorities and ambitions with our children’s priorities.
Only your child can realize a return on his or her schooling. Be sure to sit down with them and separate their priorities from your own. When considering mortgage refinancing, this kind of fact checking and personal priority evaluation can save you a bundle over the years.