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Originally Posted by BuddyLee
Okay, now you have a mortgage 200K at 5% for 30 years that you have paid on for 10 years but you can refinance at 3% for 30 years. Home loans pay back interest on the early years first the principle next. So in the early years of the new new you are paying more interest than principle again. Better to stay with the 5% for 20 more years or go for 3% for 30 more years?
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A mortgage doesn’t pay interest first and then principle later. A mortgage is the same amount of interest no matter what part of the term you’re in. The problem is that the longer you stretch out the term the longer you will pay interest and the less you will decrease your principle. I had a 30 year loan on my first house. After a couple years I refinanced down to a 15 year. Partially because of a lower rate, but also because I would knock out more principle that way. I made more progress in the first 6 months of my 15 year loan than I had in the first 5 years of the 30 year loan.
What my financial advisor recommended and I agree with is to go no longer than a 15 year loan that amounts to no more than 25% of your take home pay. It has worked out very well for my family even though we don’t have the biggest house we could “afford” with a 30 year, we have plenty of house for 2 adults and 2 toddlers.
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Originally Posted by Silver14
Nobody said rewards are how people earn their income, living, or that it made them a millionaire. If someone offered you $500, $1000, or even $2000 a year for free and it didn’t change anything you do, would you refuse it?
That’s how some people use rewards. They treat their card like cash, pay it off monthly without accruing interest, and get a reward back. It’s not the typical credit card user experience, but it happens. Not everyone overextends themselves or spends more than planned solely because some do.
They can be a tool in ones financial toolbox despite most using them in a way that makes their finances worse.
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I know nobody said on this thread that they made all of their money from their rewards. However, the myth that you can get back so much money by beating the credit card companies by only using their cards for your every day purchases is just that, a myth. Statistically speaking, at some point you either spend on something you wouldn’t have or you spend more than you meant to because you weren’t paying as close of attention.
I would be happy to get money back every year, but the fact of the matter is, statistically speaking, you’ve spent an extra $1,000, $2,000, or $4,000 more than you planned to throughout the year to get your $500, $1,000, or $2,000 had you used an alternative form of payment than a credit card. I referenced the millionaire research because I’d like to be a millionaire one day and I would like to mimic what they do so that I can be financially well off like them.