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Money Monday: Home refinance, good idea?

How do I know if I should refinance my house? What should I look for to know if that is a good idea?
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Photo by David Veksler on Unsplash

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Many financial questions are being asked right now due to COVID-19. If you have some please submit them to [email protected] and I will answer a few a week. 

COVID has caused my 401K match has caused me to increase my contributions so I have now hit the limit, should I continue contributing there or is there a wiser investment? 

Yes, it is usually beneficial to keep going on those 401(k) contributions right up until you hit the annual limit, which is $19,500 for 2020. Because this amount gets deducted straight off of your taxable income, this will give you a massive tax deduction, which compounds into further free money that you can invest elsewhere. 

Just make sure that money is going into a low-fee index fund like Vanguard’s VTSAX (or the exchange traded equivalent which is called VTI), Fidelity’s FSKAX, or others from the other major investment companies. The key is that the fee should be 0.1% or less, because over an investing lifetime, fees are what will make or break your returns.

How do I know if I should refinance my house? What should I look for to know if that is a good idea?

Refinancing is usually a great idea and most people would benefit from checking rates a bit more often and making the move when there is an opportunity. For example, right now US mortgage rates are the lowest they’ve ever been at under 3%.

If you have a $200,000 mortgage, dropping your rate from by one percentage point (for example from 4% to 3%) will save you $2,000 in interest every year. This is $20,000 per decade! 

Since refinancing costs are usually around $2,000, which should mainly be title and appraisal costs, watch out and avoid unusually large origination fees which are just profit for the lender. You would get this expense back in a single year, which is a great idea unless you will be selling that house in less than a year. I recommend checking the rates and fees with your local credit union, like Elevations and Premier Members CU right here in town, which have great service, as well as online sources like Credible.com.

This column is intended for informational and educational purposes only and should not be construed as professional financial advice for your individual situation. Please consult with a financial professional before making any serious financial decisions.