Dave Ramsey: Re-fi now?

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Dear Dave,

I recently started following your plan, and I’ve looked into refinancing the home I bought five years ago to free up more money to put toward paying off debt. My interest rate is 3.625 percent, along with a private mortgage insurance payment of $200 per month. This makes my mortgage payment $2,700 a month, and I owe $325,000 on the house. I was offered a re-financing plan that included a monthly payment of $2,576 with no PMI, but the interest rate would be 4.6 percent. What do you think? 

Phil

Dear Phil,

You don’t need to refinance with those numbers. You’d be going up more in terms of interest rate than you’d save with no PMI. The only reason the payment is going down is that you’d be agreeing to stay in debt longer.

There’s no way this deal is a good idea. You’d essentially be going up a full percentage point in terms of interest, and all you’d really be doing is resetting, or re-casting, the loan. Basically, you’d be starting over on the loan. That’s why the larger payment and PMI would go away, but you’d have a significant increase in your interest rate.

Dave    

Watch out …

Dear Dave,

My wife and I are completely debt-free, and we have a full emergency fund in place. We bring home around $110,000 a year combined, and we are both maxing out 401(k)s at work. We each just opened additional IRAs, as well. At this point, we want to start setting aside $30,000 a year for a few years as savings to help buy a home. With all this in mind, what do you think about the idea of vintage watches as an investment? I work with a high-end retail company, and I’ve noticed certain sports watches have been doubling or even tripling in value over time. Would it be okay to spend around $5,000 on a vintage watch now, or should I wait until we’re in even better financial shape?

Mike

Dear Mike,

I have a friend who has collected a few thousand bottles of wine over the years. The value of most of them has gone up since he bought them, but it’s not part of his investment strategy. So, if you buy a $5,000 watch in your situation, that’s okay. Just don’t go nuts and buy 10 of them, you know?

Then, if they happen to go up in value, it’s icing on the cake.

Dave  

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including "The Total Money Makeover." "The Dave Ramsey Show" is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.