Weekly Rate & Market Update 7-22-16
Question of the week: Do you have a method to pay off debt without using our home’s equity?
Answer: Continuing our series on refinances and whether to take any cash out, as I mentioned last week this week I will go through process that I have used with many clients over the years to pay off their consumer debt.
First and foremost to pay off debt is to quit growing debt or maintaining the same spending habits. If you are serious about being consumer debt free modify your spending otherwise you will be hamster in a wheel except with your income and debt relationship—always paying debt but never paying it off.
Then you have to have a budget as to how much you are paying out every month on credit cards, auto loans, student loans, etc. Let’s say your budget for this is $1200 per month and the total of the minimum payments on all the debt is $900 per month. In the past you have been “shot-gunning” the payments to add a little extra to each credit card while paying the required minimum on auto and/or student loan (let’s say auto and/or student loan total $350 per month).
You have four credit cards with balances and minimum payments of $12,000 at $240/mo, $9500 at $190/mo, $4,000 at $80/mo and $2500 at $50/mo for total minimum payments of $560 per month plus the auto and student loan for total minimum payments of $560 per month so your total minimum payments are $560+$350=$910 leaving you an additional $290 per month to pay down on principal balances.
Your instinct is to pay down the highest interest rate card first. Ignore your instinct and instead follow this plan and if you stick to it you will find yourself paying off all your debt faster.
I call it the Roll-Up plan. Concentrate your extra payments every month on your lowest balance, then roll that payment and the extra you have been paying on the next lowest debt, then roll that payment plus the first debt paid off and the extra into what is now the lowest debt, keep doing this until all our payments are being used to pay off your highest debt.
Example: In all these examples the auto and student loans will only have the minimum paid on them. So you will have $1200 – $350 = $850 for paying on credit cards.
To start pay the minimum on the $12k, $9.5k and $4k credit cards, total amount of $510. This leaves $340 in your credit card budget, pay all of it on your $2500 card. Keep doing this until that card is paid off, which will happen in about 8-9 months.
Success, one card paid off and out of the way. Now make minimum payments on the $12k and $9.5k cards totaling $430 and pay the balance of your credit card budget on the $4000 card for a total payment of $850 monthly budget less $430 minimum payments leaving $420 on the $4000 card. Now this card will be paid off in 10-11 months. In less than two years you have paid off two credit cards and wiped out $6500 in consumer debt.
You can see how this is going, now we have just two cards left and pay the minimum of $240 on your biggest balance and focus $610 on what was your $9,500 card (after two years probably down to around $9000) and this card should be paid off in 15 months.
You are now down to one credit card with a balance of around $11,000 and you are paying $850 per month on the balance, paying off the card in approximately one year.
From not making any in-roads to paying off your $28,000 to having it all paid off in less than four years. Seems like a long time, and it is, but consider your auto loan is probably five years, student loan more than ten and your mortgage is thirty years—and all of those carry lower interest rates than you credit cards.
As you go through this process the minimum payments on all the cards will drop incrementally, by staying with the minimum payments on all cards that are not the focus of the pay-off you will accelerate the time frames to pay off the cards you are targeting for pay-off. We have put together this plan for clients and were looking at about four to five years to be paid off on all consumer debt and most get it down in almost half the time. Once you get started you begin to alter your spending habits and become focused on paying off that one card….and then the next one…and then the next one.
Like a diet, exercise regimen or earning a degree paying off debt requires two things: consistency and commitment to the objective.
If I can be of assistance to you in planning your become debt free please contact me, I’m happy to show you where to start.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Party like its Two Zero Zero Seven. Existing home sales nationwide built on May’s increases and rose 1.1% in June—the highest monthly gain since February 2007. Year over year sales are up 3.1% with condos up 3.2% in sales. Prices were not shrinking in a market with strong sales, nationally the median price increased 3.7% and are up 4.7% year over year. This news is somewhat mortgage rate unfriendly as it not only puts demand on mortgages but also shows strength in this very big piece of our economy.
In Southern California the data is eye-popping. Per the California Association of Realtors, Los Angeles County’s median price is $502,190, up 6.1% from June 2015; Orange County median is $759,490 up 6.0%, Riverside up 6.1% to $357,810, San Bernardino plus 6.0% to a median of $245,220 and San Diego sees 4.4% year over year rise in the median price to $594,430. For those who live in LA and Orange County your home is worth more, but if you have been considering pre-buying your retirement home in the desert or mountains that home has gone up as well (if you are interested in pre-buying for retirement call me to discuss options and strategy). When prices go up with this rate it is not unusual for appraisals to lag the market so be prepared when purchasing or refinancing for some potential soft valuations that may need to be appealed with more recent sales data.
Rates for Friday July 22, 2016: A tick down in rates from last Friday. With the slow economic week trading has drifted within the range we have established over the past several weeks. Next week some big economic data, most notably 2nd Quarter GDP, which could prove to be rate movers. Now is not the time to float your rate and try to beat the market.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Down 0.125%
30 year high-balance conforming 3.50% Down 0.125%
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.
The Weekly Rate & Market Update is coming to you from beautiful Benbow, California (for those up on their California geography it is just south of Garberbille). Leslie and I are on our traditional summer road trip while the girls are at camp in Minnesota. We have driving up Pacific Coast Highway with stops so far in San Luis Opispo, Monterey, San Francisco, Ukiah and now Benbow. It is a fantastic journey with so many different vistas, geology, topography, flora and fauna. We head into Oregon today before turning south and meandering back to Long Beach. This is a trip everyone should make at least once, and perhaps more than once!
Have a great week,
Dennis
