CtWatchdog’s Personal Finance Series: Tip 1 – Borrow NOW – Refinance Or Purchase A First Home

Borrow money when you DON’T need to because when you need it no one will lend you or the cost will be exorbitant.

Today I am launching our Personal Finance Series that will stretch over several weeks. It was prompted by the Personal Finance Seminar I am moderating for Rockville Bank on Dec. 15 in Glastonbury. The event is free, but seating is limited. For reservations, call 860-291-3654. Before taking any of my advice please check with you financial advisor. I am not certified as any kind of financial planner and my advice is solely based on my personal experiences investing over the past 40 years and from being the Business Editor of The Courant for 12 years. And keep in mind. No matter what anyone says there is risk to any financial decision you make or don’t make.

One thing I have learned that whenever I needed to borrow money it was always difficult and costly. But when I didn’t need the money, banks and credit card companies did their best to get me to borrow.

So if one combines that fact of life with the bet that interest rates and borrowing costs will more than likely rise in the next 12 to 36 months, you may want to think about borrowing money that you don’t need now.

One way to do it is to refinance your home if you are paying six percent or higher on your mortgage. It only makes sense to do that if you had your mortgage just for a few years, plan to live there at least five more years, and have more than 20 percent equity in your home.

Only consider fixed mortgage rates which now can be had for about five percent. Could it still go lower? Maybe. But odds are that it will be a LONG time before we see mortgage rates at this level again.

My guess is that in three years mortgage rates will be at least seven percent. The fed will be jacking up interest rates as it pulls the trillions of extra dollars out of the economy and our country’s debt payments will be so high that it will force borrowing costs to increase.

So if that all makes sense, borrow the extra money and pay off high interest rate credit cars and cut them in half. Save the money in CDs. DO NOT SPEND THIS MONEY AND DO NOT “INVEST” THIS MONEY. This is your emergency nest egg.

If you are renting and are considering buying your first or second home in the next two years, don’t wait. For the next six months all the stars appear to be aligned: Mortgage rates will be cheap, the government will give you thousands of dollars, there is plenty of inventory, and plenty of eager buyers. Anecdotally I am hearing stories of home prices starting to bottom out in some areas of the country.

Consider buying a condo because there are a lot out there.

 BUT make sure you do TWICE the research that you would before buying one. Make sure the complex is financially viable and COMPLETED and the vast majority of the owners are and can pay their monthly maintenance fees on time.

 Be very cautious about buying into a complex that has less than 50 units because its more difficult to hire an experienced management company.

Read your condo documents VERY CAREFULLY. Assume that you will have to FOLLOW EVERY RULE. Check into whether there are any major unfunded projects you will have to pay for. If the units are more than 20 years old and the roofs haven’t been replaced, plan on helping to pay for the replacement.

Check others who own in the complex. Is the board active and fair in the way it treats unit owners?

Please post your thoughts about these suggestions and post your recommendations.

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3 Comments on "CtWatchdog’s Personal Finance Series: Tip 1 – Borrow NOW – Refinance Or Purchase A First Home"

  1. What a great idea you shared that to borrow when you don’t need it, I totally agree with you. Reading the condo in details prevent you from future trouble if any.

  2. Good article; however, what should one do about our other dilemma – low savings rates? I just paid off my mortgage because as my older CD’s matured (5 or more %) it didn’t make sense to roll them over at the present measly rates, plus my tax deductions are now too low to use the long form.

    Which brings me to my question. As I rebuild my “emergency nest egg” where the heck do I store it? Any thoughts other than CDs? If I ladder them out in CDs, 3% for 5 years doesn’t seem like a good return, never mind the percent return on short term CDs. I was thinking about some bond funds that I would switch out if interest rates rise.

    Is there a better idea?

    • George Gombossy | November 16, 2009 at 10:04 am |

      Thanks for writing to me. Each person’s case is somewhat different. For instance, are you working? Retired? Collecting Social Security? What other investments do you have? Other Debts. You need to talk with a financial planner about looking at your COMPLETE picture. If you don’t have a planner I would ask your friends and relatives about who they use and what their experience has been. I would recommend paying by THE HOUR instead of having someone manage your investments. Believe me its much cheaper that way.
      Please let us know how it works out. George

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