When You Have To Refinance Your Mortgage
One of the most common reasons for refinancing is to use home equity to consolidate high interest card and other debt. Home mortgages have lower interest rates than credit cards and other unsecured credit, so it may lower your overall monthly obligations. However it may raise your monthly mortgage payment.
A refinance means many things to many people. If you are switching your Adjustable Rate Mortgage (ARM) to a more predictable Fixed Rate Mortgage (FRM), you can budget your finances because there are no surprises that comes with the ARM. With an FRM you will be paying the same amount monthly throughout the life of the loan. Switching to an FRM means that everybody in the household will live on the same budget for years, and with more to spare.
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.
In order to calculate a budget, you should consider your monthly disposable income (after taxes). If you bring home $5000 you should first deduct fixed expenses like your mortgage, utility bills, car payments, etc. Make an allowance for more flexible expenses like groceries and entertainment and put anything left in savings.
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.
The first thing you have to do is review your expenses against the $5000 to live on. This is tough so you have to go over the new budget with your family so everybody knows where the money will be going and why every one has to minimize their spending.
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.
It is important to include savings, a retirement plan and life insurance in your monthly budget. These costs are part of a total financial plan to secure your family’s future. The reason for getting in a position where you had to refinance your home was a lack of financial planning. Don’t make the same mistake again. Plan for tomorrow.
If you are planning on refinancing, be prepared to make the higher mortgage payments and have a financial plan in place. It will mean sacrifices, probably for several years, but the in the end you will keep your home and restore your credit. It will help your children learn how to budget and live on their own later in life. With proper financial planning you will be able to retire in comfort.
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