Reader Mailbag: Fine China

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Mortgage question
2. Old papers
3. Renting from parents and insurance
4. Skill diversification
5. Willpower struggles
6. Space for useful stuff
7. Mortgage recasting
8. Food stamps
9. Why Americans are moving less
10. Credit score frustration

We received a beautiful full set of fine china for our wedding. We’ve been married more than ten years and yet we’ve never used it.

Why? When we were first married, we never spent family events at our apartment, as we always travelled for holidays.

Today, we don’t travel as much for holidays (though we do sometimes), but we’re rather scared to allow our young children to use the dishes.

This year, during the holidays, we’re planning on using them for the first time. Still, it makes me wonder whether the gift was worth it. The future will tell, I suppose.

Q1: Mortgage question
You have a knack for explaining the nitty-gritty of financial questions clearly, and I hope that you’ll bring your gift for clarity to my question:

Mortgage: $207,000 at 3.6% fixed, maturity date June 1, 2015, amortization date September 2025.
Currently paying $933 bi-weekly.
No other debts.
Retirement accounts fully funded.
Tax-free savings account (we’re in Canada) not fully funded.
Child’s education account fully funded.
Emergency fund fully funded.
No other investments.

My bank is offering 2.99% on five-year fixed mortgages. I can “blend and extend” my mortgage, creating a new 5-year mortgage with an effective interest rate of 3.49% because I would have to pay an interest penalty of $3,800. This would give me not quite four extra years at a low interest rate. If the loan is amortized over 10 years, my payments will be $944 bi-weekly — only a little higher than what I’m paying now.

I can’t figure out if paying that $3,800 is worth it. Seems to me the bank is basically charging me for a service it will not have to deliver (use of its money for 15 months). Still, there’s no telling (if anyone knows, they haven’t told me!) where interest rates will be when I have to renew my mortgage next June.

Is it sensible to renew now at this slightly lower rate? Are there any factors I haven’t taken into account?
– John

The mortgage you’re describing is a little different than the typical one, so I want to spell it out for readers. The mortgage that John is describing is one where he’s making mortgage payments as though the loan will be paid off in September 2025. In other words, if he kept paying $933 bi-weekly until September 2025, the debt would be paid off in full. The “catch” is that on June 1, 2015, he owes the entire remaining balance of the mortgage, whatever it happens to be at that point. This is sometimes called a “balloon mortgage.” People who take out this kind of mortgage will usually refinance before the maturity date – in John’s case, that’s June 1, 2015.

So John probably needs to refinance before June 1, 2015. He has an offer on the table that would allow him to refinance in such a way that the new maturity date is in 2019 and the amortization date is in 2024 which actually lowers his monthly payments, but it costs him $3,800 to make that switch.

Honestly, this situation is a coin flip. Both sides depend heavily on what happens to interest rates in the near future and whether you can get a good offer, both of which can’t be predicted. If I were in your shoes, I would probably not take this offer because of that uncertainty. If interest rates start to go up, you’ll still probably want to refinance so you can avoid the big upward “adjustment” in 2019 when your new mortgage matures. Still, the “best” solution relies on so much uncertainty that it’s really hard to know for sure what the best option is.

Q2: Old papers
How long should I keep old papers such as bank statements and bills? Also how should I dispose of them?

– Annie

I would keep income tax documents for at least ten years, if not forever. As for the other statements, I’d get rid of anything more than seven years old, as that’s outside the limitations of almost any legal obligation you might have.

For disposal, your best bet would be to shred and recycle them. Some cities make this type of service available. It takes a long time to shred lots of paper at home, but if you keep up with it, it’s not too bad, plus shredded paper also makes great firestarter.

If you have an electronic method of storing documents, there’s no reason not to keep them forever because they take up no physical space and data storage is increasing far faster than the space your documents will take up.

Q3: Renting from parents and insurance
My parents are about to start charging rent on me for the garage loft apartment I live in. The rent they’re charging is about $200 a month and includes utilities. Do I need rental insurance in this situation?

– Adam

It really depends on how “legal” your arrangement is. Is this an informal arrangement where you’re just giving them $200 a month? Or do you have a formal lease that legally protects both of you?

In the first situation, you’re basically just helping out with your parents’ bills. It’s not really a true rental situation. In that case, rental insurance shouldn’t be required as it would be part of the normal contents of the home for insurance purposes.

Now, if you’re a formal renter, your parents should have reported this to their insurers. In that case, their insurance likely won’t include your loss, which means you do need insurance. There may also be zoning issues involving a rental.

There are advantages and disadvantages of each path. A formal rental situation provides more legal protection against each other, but will likely be more expensive for both of you. Without that, you’re essentially an adult child living with parents who happens to be contributing $200 a month to the bills and the law would handle that accordingly.

Q4: Skill diversification
I am currently a yoga teacher and a high school teacher in WA with an MA in French. I’m also a new military spouse that will likely have to relocate every 3 years or so.

My career is very important to me… I love teaching, but I am also very realistic. We don’t want to have children and I would like to keep working every time we relocate.

How would you go about diversifying?

I have been thinking about getting a personal trainer certification as teaching French is very specialized… What else would you suggest? I like acquiring new skills!
– Angelina

If I were you, I’d acquire new skills that complement the ones you already have, making you a more appealing employee in the future.

You teach yoga, so have you considered expanding into teaching Zumba or other exercise classes? You teach French, so have you considered learning another language and getting certified to teach that?

Being certified to teach multiple exercise classes or multiple languages makes you much easier to employ if you move. You don’t just have one skill, you have a package of related skills that can fit into many more employment situations. A school might not need a yoga teacher, but someone who can teach Zumba and could fill in for the yoga class would be very interesting for them. Similarly, a school might not need a French teacher, but someone who can teach Spanish and might eventually fill the French role could really appeal.

Q5: Willpower struggles
I am really struggling with willpower and not spending money. I work at a coffee shop that is attached to a bookstore. The workers at each store chat with each other and at least once a week a book store worker will tell me about some amazing book and I end up sucked into the conversation and buying the book. Every time. I do read the books but I can’t really afford to buy a $15 book once or twice a week, but I don’t want to be rude either.

– Sandra

My solution to problems like this is to have a pocket notebook with me all the time. Whenever someone mentions something amazing to me, even if I’m right next to the place where I could buy it, I pull out the ol’ notebook and write down the item’s name.

This does two things. It takes the edge off of taking action right now on that item because I know I’ll remember it later. Then, when I pull it out later, I can actually find out more about it on my own and maybe find it somewhere less expensive, like a library.

Using a note system like this takes some getting used to, but I would have a hard time functioning without my pocket notebook.

Q6: Space for useful stuff
I thought you might have some insight into the “frugal” argument my wife and I constantly have. I like to save lots of stuff like shoeboxes that we might use later. I put that stuff in the garage and the spare bedroom. My wife thinks all of this stuff takes up too much space and that it makes our extra bedroom uncomfortable and she sometimes “purges” the stuff which causes us to argue. What do you do?

– Dave

We do save things like shoeboxes, but we also keep track of how often we actually use the stuff. When we need space for something else, we purge the stuff we haven’t used in a long time.

Our philosophy is that if you haven’t used stuff in years, it’s not really worth keeping. That’s true of “junk” but it’s also true of useful stuff. If you haven’t touched something in 2-3 years (and it’s not obviously home decor), then you can easily get rid of it.

That being said, I constantly use shoeboxes and other boxes for storage, mostly of game pieces, and I often use cardboard boxes for spraying miniatures (I’ve recently been enjoying painting miniatures as a hobby).

Q7: Mortgage recasting
I’m getting ready to buy a house using a conventional mortgage with 5% down. The mortgage would be significantly cheaper than what we pay in rent, even factoring in the PMI.

However, in about 5 months, I will come into a big sum of money after selling my rental property. I will take the proceeds from that sale make a big lump sum payment to help bring my mortgage low enough to eliminate PMI.

But that doesn’t solve the bigger problem. The 30 year mortgage is still based on a larger amount, so it doesn’t lower my monthly payment too much, compared to if I would have just waited until I had 20% down.

I told my mortgage broker about this concern and he told me about “loan recasting.”

“Recasting” is almost like a refinance, but costs much less (or may be free), doesn’t change interest rate, doesn’t extend your mortgage term, and lowers your payment. If you make a big lump sum payment like I plan to, the recasting recalculates your monthly payment based on how many years you have left and how much the new balance of the mortgage is after the large payment.

So not only will my mortgage drop because of no PMI, I can drop it further by recasting the payment.
– Donald

Recasting is a good idea if you’re looking solely at your monthly bills in the short term, but it has some drawbacks.

The big reason is that it ties up your cash in a less-liquid investment. Instead of having that cash in the bank, it’s now tied up in your house, so you can’t touch it without home equity loans or selling your home. This is fine if you’re not tapping an emergency fund to do it.

The only real benefit that it provides to you is that it lowers your minimum monthly payment, which actually seems to be what you need here. Other than that, it doesn’t help you in any way that extra mortgage payments aren’t already giving you.

In some situations, that’s good – like in a situation where you’re headed for a cut in salary or you’re really struggling with your current monthly payment. However, if you have to pay a significant fee for recasting, I’d really look at whether it just makes more sense to put that fee toward an extra mortgage payment or extra money in the bank instead.

Q8: Food stamps
So I lost my job in January and our family have started getting food stamps. We actually just have a special debit card to use. They help a lot with making ends meet. I just want to encourage people who lose their job to get them. All that changes is that you use a different card at the grocery store and it saves a lot each month on groceries.

– Olivia

I agree wholeheartedly. SNAP (the Supplemental Nutrition Assistance Program) is an amazing program that does a ton of good for millions of families out there. I personally know multiple families that would really struggle to feed their children without SNAP and food pantries, and these are families where all the adults are either working full time or actively searching for work or training for better work.

These things are tools that enable you to survive a crisis and also to improve your situation. If you choose not to use them out of pride, your pride is costing you hundreds of dollars a month because of your need to avoid the “shame” of using a different debit card at the grocery store.

Yes, there are abuses. There are abuses of every single program offered by every government agency and business. That’s life – some people abuse any beneficial system. Some people are criminals. That doesn’t mean that the program doesn’t help a lot of people, and it can certainly help you when the chips are down.

Q9: Why Americans are moving less
I really enjoyed this article from The Atlantic about why Americans are moving less and I wanted to hear your thoughts on it.

– Jim

My thought is that the job market is just becoming “flatter” across the United States and the world. While there are certainly some specialized career paths that are better in some areas than others, the job market is actually pretty similar everywhere in recent years.

Now, some people will point out that you can earn far more in some areas than others, but even then, the cost of living in those areas is way higher. If you adjust salaries for cost of living, there aren’t giant differences in pay, either.

If economic reasons are the primary motivation for people to move, that motivation is a lot smaller than it used to be. I think the article is spot-on.

Q10: Credit score frustration
Since I’ve paid off a large mortgage in only a few years, have a 13 year old car in great condition, always pay cash for my cars, 6 months of living expenses in savings, have five (5) credit cards but do not use them more than once or twice a year and always paid off in full each month. When checking my credit score, I admit I expected a score of at least 800 and was stunned to find it around 750. Why would my score be so low? I am never late with utility or insurance payments; taxes on the property are paid in full on time. No doctor bills or anything like that. Can you please tell me what I have done wrong and how to bring up the score? This really bothers me!!

– Sharon

For starters, your credit score of 750 isn’t going to keep you from any benefits. That score is considered more than adequate for the best rates on pretty much everything.

The reason it’s probably not 800 or over is because you likely have a credit utilization ratio of zero. In other words, when that score was calculated, you had no balance at all on your credit cards. That’s actually considered a mild negative in terms of credit score, but it’s a “negative” only in the sense of having a very, very good score and a very, very, very good score.

It couldn’t hurt to glance at your credit report just to see if there’s anything on there that you have forgotten about. You can check yours for free from the Federal Trade Commission at AnnualCreditReport.com.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>