Credit Unions – My New Best Friend

I’ll (Charles) admit that while I’m a financial planner full-time, I’m not always the most sophisticated, saavy individual when it comes to finances.  I’m more of a meat and potatoes guy, who believes in the basic principles of spend less than you earn, give generously, and avoid debt.  Stewardship doesn’t have to be complicated if we can do the simple things well. 

But I’m going to go ahead and expose my first daring move in quite some time.  I was trying to explore a way to refinance my mortgage since rates are at all-time lows right now.  I talked with a mortgage broker I knew (FYI, if you are considering refinancing, talk to one of these guys because they aren’t tied to just one lender and usually can get you a great deal), and he informed me that sadly, even though my current rate is 6.125%, there wasn’t much he could do to get me a low-to-no cost refi right now because “I’ve paid down my morgage too much”.   A great problem to have, as we only owe about 40% of the appraised value of our home, but a problem nonetheless.

Then, some form of inspiration hit.  I saw that on Bankrate there were Home Equity Lines of Credit with rates as low as 2.99% APR right now.  So I started checking into getting an H.E.L.O.C. for my current mortgage balance and paying off the entire balance, leaving me with the same balance, only on a HELOC with a rate of 3%. 

I was talking this strategy over with Chris, and he told me to check out a local credit union, because apparently they can offer even better rates sometimes.  Well, I did, and it looks like they are going to issue me a HELOC with a rate of 2.0%!  That is insane!  Before you stop reading this to go call your credit union, please keep reading as this is not for everyone. 

It only works for us because we owe a small amount compared to the total appraised value, and because more than likely we’ll be selling our home at some point within the next year or two, at which point we’ll pay back the HELOC and get a fixed mortgage on our new home.  You see, a HELOC has a variable rate, which is tied to the Prime Rate (currently 3.25%).  As the economy improves, Prime will go up, as will our mortgage (HELOC) rate.  But since we’ll be moving relatively soon, the downside risks are pretty negligible as we’ll be in this economic recovery for quite a while. 

So thanks, Family Trust Credit Union.  You are going to save me about $220 each month in interest payments (don’t worry, I’ll keep paying the same amount towards my mortgage and just pay down more principal).  That means that after 1 year, I will have paid down about $2,700 in additional principal, while making no extra payments!

What’s the lesson here?  That the meat and potatoes are what’s most important to your long-term picture.  That if you don’t practice the main principles of stewardship, then none of the fancy techniques matter.  But if you can take care of the basics first, then there are many tools and techniques out there than can help you enhance your overall financial position.