Questions to Ask Before Deciding to Refinance Your Mortgage

With the mortgage market the way it has been lately, have you been thinking about refinancing? Before you make an appointment with your lender, take the time to ask yourself the following five questions. This will help you decide if refinancing is a good idea or if it might turn into a financial problem down the road.

Why do you want to refinance?

Many borrowers contemplate refinancing to extend their loan for another 30 years to reduce their monthly mortgage payment. Another group who might want to refinance are those who bought their homes under an adjustable rate mortgage (ARM). These mortgage loans have an initial period of a fixed interest rate and then a floating rate that changes based on market conditions, so it’s sometimes best to refinance before that initial rate is set to fluctuate in an effort to manage the monthly mortgage bill. By refinancing, an ARM borrower will be able to either change to a fixed rate mortgage or extend their initial fixed rate.

How will you know if this is the right choice for you? Ask yourself if the benefit of a lower interest rate mortgage and possible lower monthly payments will be worth the cost after closing fees are added in. Closing costs can sometimes be upwards of 2% of the total loan amount, so you’ll need to do some math and figure out how long it might take you to pay that back and if refinancing is worth it.

How long will you stay in the house?

If you might be moving within the next few years, it most likely won’t make sense financially to refinance. Here’s an example: You’d like to refinance your $250,000 mortgage and you’ll pay 2% in closing costs. That’s $5,000 you have to make up so that the refinance process worth the effort. If your monthly mortgage payment is only reduced by $200, it would take you two years to make up the closing costs alone – and that’s not even factoring in that the mortgage has been extended out another 30 years.

If you plan to stay in your current home for years to come, then refinancing would most likely make sense over the long run. If you don’t think you will be in your current home in the next couple years, it might be best to hold off on refinancing for now.

How much equity do you have in your home?

If you still owe more than 80% of your home’s value, refinancing probably won’t make financial sense for you. If you currently have home equity loans, you will also need to pay them down before you look into refinancing. Otherwise, your rate and payment will be affected and most likely won’t be as low as it could possibly be – which would defeat the purpose of refinancing.

On the other hand, it’s a smart idea to refinance if you put less than 20% down when you bought the home and you now qualify to take out a mortgage with 20% or more in home equity built up. This would happen as you pay down the mortgage over the years, or due to home appreciation. When you have 20% or more in home equity, you will also eliminate your private mortgage insurance (PMI) payment. Refinancing with enough home equity can eliminate this monthly fee altogether!

How is your credit score?

If your credit score decreased since your original mortgage, refinancing would not be a good idea. A dip in credit will affect the rate you will qualify for or you may not even qualify at all. If your credit score isn’t the greatest, wait to build it back up before applying to refinance your mortgage.

Are you trying to get out of debt?

For those facing large credit card debt or medical bills, refinancing with a cash-out option (where you borrow more than the amount of your mortgage and take the extra in cash), may seem like a great idea. Technically, you can use the lower interest rate funds from the refinance to pay off your higher rate interest bills, and pay off your debt.

However, this usually only works for those who are disciplined, have adequate income to continue to pay off the debt, and fell on hard times temporarily. Even if you don’t run up your credit cards ever again, you are potentially spreading this new obligation to 30 years by adding it onto your new mortgage. You might have a smaller monthly payment, but if it takes you the full 30 years to pay off the refinanced mortgage – you’ll owe 30 years of interest built in as well. This is definitely something to consider and you’ll want to really do your research before you consider the cash-out refinance option.

In the end, not everyone will benefit from refinancing their mortgage. If you are considering it, be sure to answer the five questions above to know if refinancing is the right financial step for you. Questions about refinancing? Contact the Loan Department at First Financial, and we’ll help you decide between your options with personalized service.*

*APR = Annual Percentage Rate. Subject to credit approval. Credit worthiness determines your APR. Rates quoted assume excellent borrower credit history and are for qualified borrowers. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. Higher rates may apply depending on terms of loan and credit worthiness. Available on primary residence only. The Interest Rates, Annual Percentage Rate (APR), and fees are based on current market rates, are for informational purposes only, are subject to change without notice and may be adjusted based on several factors including, but not limited to, property location, loan amount, loan type, occupancy, property type, loan to value, debt to income ratios, FICO credit scores, refinance with cash out and other variables. Mortgage insurance may be required depending on loan guidelines. This is not a credit decision or a commitment to lend. If mortgage insurance is required, the mortgage insurance premium could increase the APR and the monthly mortgage payment. See Credit Union for details. A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. 

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Could Your Budget Handle a Decrease in Income?

One of the most difficult situations to deal with is a decrease in income, especially if you are like many Americans of late – living paycheck to paycheck. Many of us base our lifestyle around and live right up to the limit of what our income can afford us to purchase. Living this way can really hinder your budget no matter how much you bring in.

However, spending above our means and not sticking to a budget can really be a problem – because what happens if life throws out a curveball? This unfortunate instance happened to many Americans this year during the COVID-19 pandemic. Here are a few ways to make sure you are financially prepared should you ever experience an unexpected income drop.

The Importance of a Variety of Income Sources

One of the best ways to handle a potential loss of income is to build up income from various sources, if possible. This can be important so that you aren’t relying on one source of income for everything.

If you don’t make as much as you’d like in your daily 9 to 5, starting a side business or part-time job in order to be able to fall back on additional income can be a help. Try to consistently save some of your extra income when times are good so that you are prepared the next time a crisis happens.

What Can You Cut from Your Budget?

It’s important to know which items you would cut in a pinch from your budget if you had to. It’s also good practice to plan ahead of time and figure out where you could cut back if you ever needed to.

Look at your spending patterns, and figure out what is most important. Items such as groceries and bills are necessities, and will need to be managed even if you are making less. However, dining out and added services such as cable can always be temporarily cut from your budget if you needed to.

Review what you spend money on currently and start to get prepared. You could even think about cutting back on some of that spending now, and put it aside in your emergency savings fund to be ready for a rainy day.

Do You Have an Emergency Fund?

This is one of the most important savings accounts to ever have. An emergency fund’s purpose is to be a safety net in the event that your income takes a cut, and you no longer have enough money to meet your current financial obligations. When you have somewhat of a buffer saved in the bank, you’ll feel better prepared and less stressed should you experience any sort of financial emergency. Continue to save what you can and keep putting it away into your emergency savings account – every little bit helps!

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Should You Take Out a Personal Loan or Line of Credit?

When it comes to Personal Loans and Personal Lines of Credit, the options for how to use the funds are endless. While both offer flexibility in the different ways you can use them, there are certain instances where choosing a Personal Loan might be a better fit than a Personal Line of Credit and vice versa. Let’s explore these options and help determine which is the best choice for you and your budget.

Consider the Nature of the Expense

Personal Loans are distributed in one lump sum and are typically best for large, one-time expenses. Popular uses include back-to-school costs, paying off high-interest debt, and higher education expenses. In contrast, Personal Lines of Credit are revolving and operate similarly to a credit card – where you only pay on the amount you use for a specified term. This credit line is consistently available – once you pay off the money you have borrowed, the funds open up again.

A Personal Line of Credit can be optimal if you aren’t sure how much money you will need to borrow or for how long. Common examples of ways to use a Personal Line of Credit are supplementing irregular income, making home improvements, and having a backup for when unexpected expenses arise.

Evaluate the Terms and Your Budget

One way to remember the difference between a Personal Loan and a Personal Line of Credit is that a Personal Loan is fixed and a Line of Credit can change over the term. If you’re looking for a way to budget a certain amount each month, a Personal Loan ensures that you’ll pay a set amount each month for the life of the loan. With a Personal Line of Credit, the term will typically be longer and you’ll only pay on what you use. For example, if you are approved for a $10,000 credit line and only use $2,000 of the money, you will only need to make payments on the amount you’ve used. Alternatively, if you have a Personal Loan – you’ll make payments on the total amount of money borrowed, whether you’ve used the funds or not.

Qualifying for a Personal Loan vs. a Personal Line of Credit

Typically, receiving approval for a Personal Line of Credit is more challenging to obtain than a Personal Loan. Why?  Due to the flexible nature of a Personal Line of Credit, having a good credit score is a significant factor in the decision to approve funding. On the other hand, a Personal Loan with its fixed term and amount borrowed – usually allows for easier approval.

Making the Decision

Why is it important to know the differences beyond the interest rate when it comes down to Personal Loans and Personal Lines of Credit? While often confused, these loan types have distinct differences that – if not chosen wisely, you could end up paying more. Factor in the end result of what you will be using the loan or line of credit for, how soon you’ll be able to pay it back, and take a close look at what your monthly budget is before you apply.

If you’re looking to fund the next step in your life, First Financial can help you achieve your financial goals. Talk to us today about your options and how to choose the right solution for you. Learn more about our Personal Loan and Line of Credit options here, and apply online 24/7!

*APR = Annual Percentage Rate. Actual rate will vary based on creditworthiness and loan term. Subject to credit approval. A First Financial Federal Credit Union membership is required to obtain a Personal Loan, and is open to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Federally insured by NCUA.


What to Do When Your Vehicle Lease Ends

My car lease is almost up, now what?

This is a common question when nearing the end of an auto lease. In most cases, you have three options:

1. Walk away from the lease.

Walking away from a lease may cost you in disposition or termination fees, mileage charges, and additional costs for wear and tear.

2. Trade the vehicle in.

Most times, you don’t have to trade the vehicle in to the dealership that leased you the vehicle. This may help you avoid those end-of-lease fees that may be associated with walking away from the lease.

3. Purchase the vehicle.

This will also help you sidestep the disposition and other end-of-lease fees. You’ll have the first option to purchase the vehicle. If you don’t purchase it, the dealership gets the next opportunity and the leasing company after that.

First Steps as You Near the End of Your Lease

Before you make a decision, look up the residual value and true value of your vehicle. The residual value is the amount you can purchase the vehicle for at the end of your lease. This number is essentially set in stone.

The next number is the true value. This is what a dealership would intend to pay for your currently leased vehicle. You can choose to research this number through online websites like Kelly Blue Book or NADA, however these platforms will only provide estimates. The official true value can only be found by inquiring what a dealership would pay for your vehicle today.

Should I Buy?

The steps above will indicate two things: What you would have to pay to purchase your vehicle, and what equity your vehicle still has. Once you know these numbers, you can consider whether purchasing the car is right for you.

Purchasing your leased vehicle is a good idea if:

  • Your car has excessive wear and tear. This means when you go to trade in the vehicle or walk away from the lease, you’ll be charged additional fees for fixing any damages. If you purchase the vehicle, you can choose to pay to fix those items when it’s convenient for you and your budget.
  • You’re way over—or under, on mileage. If you’re way over, you’ll owe a hefty charge for trading your car in. If you’re under your allotted miles, you’ll likely have equity in your vehicle’s value versus what you would purchase it for.
  • You love your car! Yes, sometimes the numbers don’t have to match perfectly. You may be exactly at your mileage allotment, and you still want to keep the car you’ve had for the past few years. This might be a great option too, and we’re happy to help you do so (and potentially save some money on monthly car payments) with our Lease Buyout Program.*

Need help deciding which option is best for you? Our Loan Department is happy to talk through your decision with you, and help you get the best possible deal. Get started by calling 732.312.1500, Option 4 or apply for our lease buyout loan online or fill out our quick online inquiry form and a representative will contact you.

For more information, check out our previous blog post: Reasons Buying Out Your Lease Makes Good Financial Sense

*APR = Annual Percentage Rate. Not all applicants will qualify, subject to credit approval. Additional terms & conditions may apply. Actual rate may vary based on credit worthiness and term. A First Financial membership is required to obtain a First Financial auto loan and is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. See credit union for details. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Federally insured by NCUA.


How Much Do Your Financial Vices REALLY Cost?

What is one thing you just can’t live without? That little indulgence that helps you make it through the day. For some of us, it’s a jolt of caffeine. For others, Netflix and Hulu offer a sweet escape from the hustle and bustle of everyday life. What we sometimes fail to think about, is these little escapes can be a drain on our wallets. Here are some ways you can cut those costs.

Coffee/Energy Drinks

The mid-morning slump, the mid-afternoon slump, and the post-mid-afternoon slump. The idea is that sometimes the day seems to drag on for way longer than seemingly possible. Some people reach for the nearest Starbucks to replenish their energy reserves, while some crack open an energy drink in the hopes of pushing through the rest of the day. What neither often considers, is that these sources of liquid energy can really add up. The average price of a cup of regular (non-latte) coffee from Starbucks is $1.89, and that’s only the average – some areas will be much higher. That may not seem like much, but consider this: an American who drinks coffee at home will save approximately $427 per year over those who regularly visit coffee shops. When we look at energy drinks, on average they cost anywhere between $2-$4. They can be almost double the cost of coffee. A cheaper alternative – green tea! If saving money is high on your priority list, put your at-home barista skills to work.

Subscription Services

From snacks to pet toys, a new wardrobe, and everything in between, there is a subscription service for it all these days. Many in fact, sometimes forget what they have subscribed to, leading to a big bill each month. Arguably the most common subscription is Netflix, which will cost you around $12.99 a month (if you only want the standard package). Add in Hulu ($5.99), BarkBox ($22), and StitchFix ($20), and you now have a monthly subscription bill of slightly over $60. See how fast that adds up? Not to mention the ever-popular meal subscription services can run you about $200 a month. While these modern conveniences are well…convenient, they are also pricey. Most of us don’t want to give up our Netflix, and that’s fine. Take a hard look at all your subscriptions. Are you getting your money’s worth? Do you eat all the meals from the meal kit? Do you keep enough from StitchFix that the $20 a month fee is worth it? Odds are, you’ll find one or two subscriptions you can live without. Your quality of life will stay the same, and you’ll save money too.

Take Out

Do you look at a recipe and instantly get woozy? Cooking isn’t for everyone, and take out can taste great and you barely have to lift a finger to get it nowadays. Before you pull up DoorDash or GrubHub, consider that the average household spends $3,000 a year dining out. That’s no small amount. On closer look, a prepared meal at a restaurant costs on average, $13. Compare that to the average cost of groceries per person for an at-home meal…$4. Yes, that is a $9 savings just from eating at home. The good news is that anyone can cook. All it takes is a little preparation. Plan your meals, choose easy recipes, and don’t expect every meal you prepare to be a Michelin-star experience. Casseroles are an easy meal that is also inexpensive and tasty. If you are completely opposed to cooking, be responsible with your take out. Choose locally-owned businesses and restaurants so that your money is stimulating the local economy. When you use a delivery service, you aren’t just paying for the food. Your total also includes a service fee, tax, a delivery fee, and a tip. Many times your order total will be double. A recent study showed that your meal will cost you 32.8% more when you order food from DoorDash vs ordering directly from a restaurant.

Online Shopping

“Add to Cart.” The temptation is always just a click away. Surfing the net can bring some expensive side effects as you see a constant flood of targeted ads. It’s like they know exactly what you’re looking for. When an online retailer meets your wants and needs (and at such a deal), it becomes hard to pass it up. And free shipping? It can more than likely be a trap to get you to continue to spend. Sure, you are getting good deals on your online purchases, but this can also make you feel like you can buy just one more thing. Soon, your whole budget has been blown on online shopping. There are many ways you can curb this habit. For starters, make sure to delete your payment information from auto-populating in services like PayPal and Amazon. Secondly, set strict limits for yourself. In your budget, set aside some funds for online shopping. If you know this is the only money you have to splurge, you might think twice before clicking “complete purchase.”

If you do any of the things above, the first thing to remember is not to get discouraged. A cup of coffee or a new shirt never hurt anyone. With most things in life, our financial vices are all about moderation. We wouldn’t expect you never to visit a Starbucks or get take out ever again. Set realistic goals for yourself and hold yourself accountable, you’ll be amazed at the savings. At First Financial, we are here to help you reach your goals and attain financial stability. To get started, check out our handy budgeting guide.

Summer 2020 Newsletter

We know it’s been a different type of Summer than usual, but we hope all our members and their families are staying safe and healthy. Here is a copy of our Summer 2020 Quarterly Member Newsletter!

In a continued effort to go green, we’re publishing our newsletter electronically – it can also be found on our website and social media sites. Paper copies will be available in our branches.

The Summer Newsletter features the following articles:

To view a copy of the newsletter, click here.

We hope you enjoy the remainder of the Summer, have a Happy Labor Day and wishing all our student and educator members a great upcoming school year!

*Not all applicants will qualify, subject to credit approval. Additional terms & conditions may apply. Savings or Certificate rate plus 3.5% up to a 5-year term. Funds pledged as collateral cannot be withdrawn unless the loan is paid in full. Loan term is based on amount requested. A First Financial membership is required to obtain a First Financial loan and is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. See credit union for details. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Insured by NCUA.