First off, congratulations! The positive impact of refinancing at today’s low rates AND (if you pulled cash out to pay off your debts) not having multiple credit card, auto loan and other associated debt bills arriving in your mailbox (and/or inbox) each month is a true emotional lift. The start of each month shouldn’t be a time of dread, but rather a welcoming of another new beginning. Simply knowing that you have a “cushion” because of your new rate and/or because of several monthly debt payments savings each month surely gives a welcoming sigh of relief. After all, if you did pay off debt, replacing a high single-digit (or double-digit) interest rate for today’s incredibly low mortgage rates not only feels good, but could very well save you money if you’re disciplined enough to use the newly-saved cash to apply to your new mortgage.
However, while on paper doing so makes tremendous sense, the fact is that most households have that nagging inconvenience called life issues enter in at some point in time. When it happens (as it does to all of us), sometimes the money saved needs to go to other expenses, be it auto repairs, house repairs or an unexpected health issue. Worse, if an emergency is more than the monthly savings from the refi, most homeowners return to using credit cards as a short term solution. The problem is, the short term solution might not be so short term when it comes time to paying it down again. Such a situation could easily upend the best of intentions to pay down the new mortgage quickly and, once started, can sometimes be difficult to stop.
Additionally, while rolling debt into your mortgage does indeed give a sense of relief and accomplishment, you know there’s a cost to doing so. Whereas the debt might have been paid off in a few or maybe even in as many as ten years, now the payoff duration matches the new mortgage duration of fifteen or thirty years. And, along with duration, comes interest, in that the longer you pay, the more the bank earns.
So, what can you do to pay off your new, refinanced mortgage AND avoid the pitfalls of falling into a debt trap (again)? In my August 9th post, entitled “Should You Pay Off Your Mortgage” (you can click the link here to take you to it), I pointed out that, even though mortgage rates are at near all-time lows, the percentage of interest relative to the monthly payment is still exceedingly high, especially in the early years of a mortgage. In fact, it usually isn’t until the END of the loan that interest on the payment is at a reasonable level. Even if you are disciplined such that no additional debt would be added in the future, paying off your new mortgage in half the time as scheduled, as well as avoiding paying all that mortgage interest gives a sense of freedom most simply will not know. Bearing all that in mind, shortening the duration considerably, while still retaining access to emergency funds solves both problems, both current and potential.
The Solution: Most people will never know the feeling of becoming completely debt free within a relatively short period of time (including their mortgage), to say nothing of not intending to fall back into debt again after paying it off. However, the Your Family Bank concept could be your answer to making sure both of these goals are accomplished. First and foremost, paying off a mortgage of any duration is a great feeling. Doing so in less than half the time currently scheduled would be extraordinary. Futhermore, since the YFB concept also generates a cash account, emergencies can be managed and not feared, so the re-accumulation of debt can be avoided. And since the YFB concept is self-completing, in the unfortunate event the insured passes away, a tax free death benefit is there to complete the payoff process, giving heirs the time and freedom to grieve. Lastly, doing all of this without having to earn any additional dollars to accomplish it means a lower stress level in your and your family’s life.
If you’d like to learn more about the Your Family Bank concept and see how it can benefit your specific situation, please contact me at d.babecki@db3insuranceservices.com or give me a call at 941-704-3134. As always, thank you for reading and let me know how I can be of service.
About David J Babecki
David Babecki is the Owner/Founder of DB3 Insurance Services and has over 20 years of experience in personal insurance, proudly protecting clients against outliving their money, stock market risk, and of course, insuring their lives against the unforeseen.
David started his career with Raymond James & Associates in 2000 before becoming an independent agent where he offers a number of services to solve client needs. David has spent the majority of his life in the beautiful Tampa Bay area where he currently resides with his family.
David is a Licensed Life Insurance Agent FL # D053146
The above article reflects the opinions and thoughts of David J. Babecki. The information contained in this material is believed to be reliable, but not guaranteed. It is for informational purposes only and is not a solicitation to buy or sell any products which may be mentioned. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
Please note: All guarantees and/or promises are based on the claims-paying ability of the respective insurance company.
