Refinance or Not? (Your Advice) – Why Losing Money Hurts – Mom’s Work Is Worth $138K


Financial wake-up callI received an email asking me for an opinion on whether it would be wise to refinance a mortgage that has under 10 years left on it back to 30 years to free up money to pay off debt. With the below circumstances described, what would your advice be?

My husband and I (25 years married) are in debt to the IRS for $13,000 and to the state for $4,000. We have been making payments of $325.00 and $350.00 monthly for the past 8 months to IRS. My mortgage is currently $2,200.00 a month with a 2nd mortgage of $20,000. The first mortgage has a balance of $148,000 and is to be paid off in 8-9 years. I also owe school loans totaling 15,000.

My question is do I refinance my home loan for 30 years? The finance rate is not known at this time.

It will pull enough equity to pay off IRS bills giving back 675.00 a month.

We have been truly suffering through this debt. We have no savings, no 401K nothing in reserve at all. We filed bankruptcy in 2004 and are cash poor and thank God credit card poor (we have none)

What should we do that would make the most sense. Should we continue the 8 years and continue to suffer –

I have 1 car loan with payment of $350.00, utilities runs around $1,000 for everything including phone service, lights at 225.00 month etc…

My husband says he wants to continue to pay – off the existing loan because he cannot work another 30 years. Is he looking at this wrong. Isn’t the only main deduction anymore just the mortgage interest?

Why Losing Money Hurts Like Hell: A news study shows that “losing money activates the same area of the brain involved in responding to fear and pain…”

Stay-at-home Mother’s Work Worth $138,095 A Year: I would say it is even worth more since they are raising our future, but that’s the salary they came up when adding up the tasks the average mom does in her daily routine if she was to be compensated in the job market. You can find out exactly what your worth is as a mom inputting your specific numbers by using the Mom Salary Wizard Calculator


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May 3rd, 2007
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Comment Number:
1
Written by:
Credit Cards Advice
Posted on:
May 3, 2007 at 2:08 am

The first thing that entered my mind was the comment:

My question is do I refinance my home loan for 30 years? The finance rate is not known at this time.

Before you can make the right decision, you absolutely must know all the factors and not knowing your rate on a refi loan, you simply cannot make an informed decision.

Get your numbers nailed down, talk to your bank and seek an independant financial counsellor before making any final decisions.

Comment Number:
2
Written by:
Joey
Posted on:
May 3, 2007 at 2:36 am

Umm, are you assuming that will be living in the house for the next 30 years. I realize it may just be me but I just could not for the life of me live in the same place for 30 years. And if it gets the IRS of your back plus gets all of your other finances taken care of. As long as the rates are good you will wind up with a payment less then the total amount of money you are shelling out each month.

Comment Number:
3
Written by:
Jim
Posted on:
May 3, 2007 at 5:53 am

This isn’t an either-or situation. You can also get a 15, 20, or 25 year mortgage.

I would strongly advise you to refinance the IRS, the 1st mtg, and the 2nd mtg into one 15 or 20 year mortgage. This pays the debts off quickly and give you some wiggle room.

Other than the Mafia, the IRS is the worst entity to owe money to. They have almost limitless powers to reposess, foreclose, garnish, etc. Do whatever it takes to get them off your back.

If EVERYTHING is in one payment, that gives you some extra cash to start saving for retirement. As it stands now, your husband might have to continue working longer than planned simply because there are no retirement funds available for him.

Two other suggestions for you: can YOU work too and have you considered moving into a cheaper home? Can you imagine what you could do if your mortgage payment was half of what it is today? If you worked a minimum-wage job (these are unusual in most parts of the country), you could pay off the IRS in a year. Combine that with moving, and your husband might be able to retire early!

Good luck,

Jim

Comment Number:
4
Written by:
Guy
Posted on:
May 3, 2007 at 11:40 am

If you have a payment plan with the IRS and they aren’t charging interest, then economically it doesn’t make sense to take out a loan incurring interest to pay a loan that doesn’t. Being able to deduct some of the interest in a mortgage isn’t as good as not owing interest at all.

Comment Number:
5
Written by:
Jim
Posted on:
May 3, 2007 at 12:23 pm

While the numbers work better Guy, by using the IRS payplan, you take the risk out of the equation by removing the IRS influence over your life.

If the husband loses his job, gets injured, gets demoted, etc., the IRS won’t be a concern because they are paid off.

Otherwise, when the IRS payment can’t be made, the IRS goombas are back in your life again.

If an emergency occurred, I’d much rather be dealing with Chase/Fifth Third/Bank of America/etc. than with the IRS.

Jim

Comment Number:
6
Written by:
Jim
Posted on:
May 3, 2007 at 1:52 pm

The first sentence of my last post has an error – should read :
“…better Guy, by PAYING OFF the IRS payplan, you take the risk out of the equation…”

Comment Number:
7
Written by:
Teri Newton
Posted on:
May 3, 2007 at 7:04 pm

IRS charges interest and penalties – so interest is about 14% (8% interest plus 6% annually for penalties). For now, with interest rates rising… They may rise their interest rates as well – they change them quarterly. Just wanted to point this out.

Comment Number:
8
Written by:
dan
Posted on:
May 3, 2007 at 8:50 pm

Is a refinance really necessary? Can you take out a line of credit instead? This may be a better option than refinancing for a long period. I just wanted to mention that there are other choices that you may not have thought about.