Is Rate the Only Thing That Matters?

SFL rate question


We make financial decisions all of the time.  Are you making your financial decision solely on the rate that you will receive? Are you considering other factors when making financial decisions?  If you are trying to simplify your finances, don’t let the interest rate be the determining factor in your decision:

New Deposit Account

You see an offer for a higher yielding account.  Before you decide to open the new account because of the interest rate you will receive ask yourself a few questions:

What other services or benefits will I receive from this new account?

Do I need another account?

If I open this account should I consider closing one of my other accounts?

Is this rate just a teaser rate to get me to open a new account with this institution?

How long will I receive this rate?  Six months, One year, or longer.

Why do I need this account?

Is the rate worth the time and effort to manage this account?

How much more is the rate compared to my existing accounts?

Should I consider consolidating my other accounts with this bank?

Why is the bank offering a better rate than all of the other banks?

Consider these factors before you decide to open a new account which tempts with a better rate.  You may thank yourself later because if you decide not open the account that will be one less account you will have to keep track of as well as one less statement.   If its a good rate see if your existing bank will match the offer for you or if they have similar type of account.  This way you do not have to move your relationship and still benefit with the better rate.

New Credit Card

You receive a credit card offer in the mail that looks very enticing. The new card offers a lower than you are currently receiving.  Here are a few questions to ask yourself before you apply for the new card:

How long will I receive this lower rate?

How much will I really save by having a lower rate?

If I do not carry a balance what other benefits will I receive from the new card?

Could I receive this rate from one of my existing cards?

Should I close an existing card to replace the new card?

How will this card impact my credit score?

What will I use the card to purchase?

Do I really need another credit card?

New Mortgage

You are looking to purchase a new home or considering refinancing your existing mortgage.  Will you chose the mortgage provider who offers the lowest interest rate? Remember this decision will be a long term one since you will have at least a 10 year relationship with your mortgage company.  All rates are not the same.  Ask yourself these questions before accepting the lower rate:

Am I paying other fees to make up for the lower rate? Some mortgage providers will offer lower mortgage rate but will charge other fees such as orgination, application fee or lender fees

What is the reputation of the mortgage provider? You want to work with provider that will be able to close your mortgage in a timely manner. If not that lower rate will not be worth it if not able to close on time.

Does the rate come with prepayment penalty?  You may have to pay a penalty if you pay the loan off early.

What are their underwriting standards?  Are they the same as other lenders.

Will my mortgage be sold to another mortgage company?

Doing a little research on rate on the front end will simplify the process on the back end.

New Investment

Did you just see an advertisement to receive a set rate of return which is great rate and sounds like a good deal.  Here are some questions to ask yourself before you make this invest:

How risky is this investment?

Is the expected return higher than other similar investments?

How long is my money locked up?

How quickly can I liquidate the investment if needed?

Does this investment fit within my current investment goals and objectives?

What fees do I have to pay for this investment and what commission does the sales person receive?

Asking yourself these questions will help you save some future headaches and prevents you from investing in some investment just for the rate.

As you can see taking a minute and asking yourself a few questions may prevent you from opening a deposit account that you really did not need, obtaining a new credit card that you did not need, find the right mortgage provider, or make the right investment that meets your investment objectives.   Doing this will also help you simplify your finances because that will be one less deposit account, credit card, or investment you have to manage.

Which of these questions will you ask yourself next time  you see that higher interest deposit account, lower rate credit card or low rate mortgage offer?

Til next time take one step at a time to simplify your finances.

If you enjoyed this post and would like a simple checklist of questions to ask before you open that next account, sign up for my newsletter and you will receive a free eBook as well as an easy checklist of questions to ask before you open that next account.



Copyright: timbrk / 123RF Stock Photo

Simplify your Mortgage Refinance with these Seven Questions

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With interest rates at their lowest in decades many of us are considering refinancing our mortgages.

Refinancing your mortgage can help you simplify your personal finances since interest rates are so low? Should you refinance now is a good question to ask yourself but it will depend. There are several reasons why you should consider refinancing and low interest rates are only one of the reasons why.  Yes a lower interest rate can save you money but make sure you consider these questions before you decide to refinance your mortgage.  It will help simplify the refinancing process.

#1 What is your current interest rate? Before you consider if you should refinance or not you must know what your current interest rate is.  Is your current interest rate a fixed rate or an adjustable rate?  If you currently have a fixed rate, what is the difference in your existing fixed rate and the current market rates.  If you have an adjustable rate it is important to know the difference in your existing rate and current rate but you also want to know when your adjustable rate will adjust.  This can significantly impact when you need to refinance or not.  Also what will the rate adjust to on the adjustment date?

#2 What type of mortgage do you have? Is your existing mortgage a 30 year fixed, 15 year fixed, or 7 year, 10 year, or 5 year adjustable rate mortgage?  Understanding your current terms will help with your decision.

#3 What is the estimated value of your home? You want to know if your home has increased in value or decreased in value.  The reason you want to know this is because a decrease in value can have a impact on the refinancing of your mortgage particularly if you owe more than your home is currently worth.

#4 What will be your estimated closing cost?
You want to know how much the refinancing will cost you.  Do you have the funds available?  The closing cost will include title work, appraisal fees, and any leader fees they may charge.  So make sure you ask before you start the refinancing process.  Your lender should be able to give you an estimate of what the closing cost will be.

#5 How much will refinancing save you? Saving over the long term is the reason most people refinance.  So calculate your total monthly and yearly savings.  Also remember to add in the closing cost when calculating your total savings.  You don’t want your closing cost to negate your savings.

#6 What is your lenders underwriting criteria? Due to the current economic conditions many lenders have tightened their underwriting standards.  Be sure you understand their criteria.  For example,what type of credit score is required?, What are their loan to value standards? and What financial documentation will be required?

#7 How long do you plan to stay in your existing home?
This helps to understand what terms are best for your situation.  For example, if you know you will be moving or purchasing a new home within 5 years do you want a 30 year fixed mortgage. Maybe or maybe not. If you plan to stay in your current home for the next 10 years do you really want the 5 year adjustable rate mortgage just because the rate is lower rate.

TAKE ACTION by answering these seven simple questions before your begin the process of refinancing of your mortgage. Remember take one step at a time to simplify your personal finances.

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