There are other options too, but the point to consider is the impact of the decisions. In 2003, the likelihood would be that that same home could be worth over $325,000 if it was located here on the west coast and could have been renewed again at lower rates. This same couple would have those same key decisions– lifestyle and immediate benefit, or longer-term independence.
You can say that if our couple used some of the refinanced money to renovate their home, they would be adding value; however, the point is that if they had a vision and plan for their life, they might have considered the long-term costs of their decisions. Simply renewing the existing mortgage and maintaining the mortgage payments at the original level would mean this couple would be mortgage free in less than 15 years and would pay 10”s of thousands of dollars less in interest charges and only been out of pocket a couple hundred dollars more each month than the couple who renewed at the lower monthly payments, or refinanced more at each renewal.
If our young couple considering home ownership put themselves in a situation where they were financially stressed from month to month, there is a much higher probability they would consider a refinancing option, or other low rate alternative simply to keep supporting their lifestyle. There are so many strategies to use in personal finance, and more available each day. How does someone distinguish between what’s best and what’s merely good for the moment? The easiest is to develop your vision, set the goals and always use that as a guide when gathering information and making decisions before considering interest rates, fees, prices, and immediate desires. There really is no one perfect route to financial success – it will look completely different for each person, however, “if you don’t know where you’re going, you’ll probably end up somewhere else”.