Many people we encounter are trying desperately to get ahead financially. However, many are struggling to get ahead because they are figuratively driving down the highway with their feet on gas and the brake at the same time. Most are mired in consumer debt, falling portfolio values and declining incomes.
Most families are trying to save (I said save, not gambling with mutual funds and other investments in which they have no expertise) money but are typically taking one step forward and two steps backwards. People are using credit and equity to buy depreciating goods and “assets”.
Let’s get into a case study explaining how we helped an Oakland, CA family get out of the debt rat race and establish and emergency fund in case of a financial disaster. We set up a debt consolidation refinance of their Oakland residence with a competitive interest rate.
As a mortgage broker in Oakland, CA we must know how to deal with a vast array of clients from different backgrounds. This particular client worked local utility company and his wife worked in a medical office. They had little to no savings and no emergency fund.
The total debt incurred by the family was close to $440,000. Mortgage debt accounted for $315,000 and consumer debt of $125,000 made up the balance of the debts incurred. By refinancing with a new $496,000 loan with a 30 year fixed rate, paying off the old mortgages and $77,000 of the consumer debt we were able to free up $1700 per month immediately. They would also have a nice, fat $100,000 emergency fund. The other $48,000 in debt would be satisfied over the next two years with a portion of the $1700 per month savings.
Now the family could be completely debt free after 13 years if they follow the plan. They key strategy was to take the $100,000 cash out from the home loan refinance of the Oakland property, apply the $1000 per month savings to the long term needs fund on a monthly basis and use the other $700 per month fund the emergency account to handle any unforeseen occurrences.
Initially this family came to me because they wanted to purchase a vacation home which would have added even more debt to their balance sheet. During the home loan qualification and application process I asked them how old they wanted to be when they could afford to retire. Their answer was 60 or 65. Based on their situation at the time they would have been well into their late 70’s or early 80’s before they could retire. Now they should be debt free in their early to mid 60’s.
If you or someone else you know wants to get mortgage advice at competitive interest rates that can change their financial future for the better call 510-481-7500 for a complimentary consultation.