When is the right time to refinance?

Published 11:46 pm Friday, May 31, 2019


Dave Says

Dear Dave: I recently started following your plan, and I’ve looked into refinancing the home I bought five years ago to free up more money to put toward paying off debt. My interest rate is 3.625 percent, along with a private mortgage insurance payment of $200 per month. This makes my mortgage payment $2,700 a month, and I owe $325,000 on the house. I was offered a re-financing plan that included a monthly payment of $2,576 with no PMI, but the interest rate would be 4.6 percent. What do you think? — Phil

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Dear Phil: You don’t need to refinance with those numbers. You’d be going up more in terms of interest rate than you’d save with no PMI. The only reason the payment is going down is that you’d be agreeing to stay in debt longer.

Now, if you could’ve lost some of that interest rate, and gotten rid of the PMI, that might have come close to making sense. But, even that might not have worked in the end, because you’d have closing costs associated with the deal.

There’s no way this deal is a good idea. You’d essentially be going up a full percentage point in terms of interest, and all you’d really be doing is resetting, or re-casting, the loan. Basically, you’d be starting over on the loan. That’s why the larger payment and PMI would go away, but you’d have a significant increase in your interest rate.

Where you’re at right now is fine, Phil. You’re off to a good start, so just keep on moving forward with getting out of debt and gaining control of your finances! — Dave    

Don’t make collectibles your investment plan

Dear Dave: My wife and I are completely debt-free, and we have a full emergency fund in place. We bring home around $110,000 a year combined, and we are both maxing out 401(k)s at work. We each just opened additional IRAs, as well. At this point, we want to start setting aside $30,000 a year for a few years as savings to help buy a home. With all this in mind, what do you think about the idea of vintage watches as an investment? I work with a high-end retail company, and I’ve noticed certain sports watches have been doubling or even tripling in value over time. Would it be okay to spend around $5,000 on a vintage watch now, or should I wait until we’re in even better financial shape? — Mike

Dear Mike: Yeah, you could do that. Just make sure you look at it the right way. It would be a hobby, not a real investment.

I have a friend who has collected a few thousand bottles of wine over the years. The value of most of them has gone up since he bought them, but it’s not part of his investment strategy. So, if you buy a $5,000 watch in your situation, that’s okay. Just don’t go nuts and buy 10 of them, you know?

What we’re talking about here are collectibles. It could be the first step in building a collection of fine watches over the years. You could do the same thing with cars, but don’t make them part of your investment strategy. Treat them like consumption items, things you can afford to spend money on and enjoy.

Then, if they happen to go up in value, it’s icing on the cake! — Dave  

Dave Ramsey is CEO of Ramsey Solutions. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.