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The Simple Dollar

Mortgage refinancing? Board games? Top 10 questions from the mailbag

Personal finance, self condemnation, and video game recommendations all appear in today's 'Reader Mailbag' column.

By Guest blogger / October 6, 2010

When does it make sense to refinance instead of just overpay the mortgage? Look at question 7. Here, in a file photo from January 2009, Natick, Mass. realtor Beth Byrne signs papers to refinance her own mortgage, getting a 4.875% rate down from her current 6.25% rate.

Melanie Stetson Freeman / The Christian Science Monitor / File

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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. Donating to charities through businesses
2. Advanced board game recommendations
3. School or buy a house?
4. Rapid car loan payoff
5. Dealing with parental yearning
6. Life is not a test
7. Do extra mortgage payments help?
8. Games with great replay value
9. Handling a cash lump sum
10. Setting priorities in complicated situation

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Recent posts

Over the last few months, I’ve been reading Stieg Larsson’s Millennium Trilogy (The Girl with the Dragon Tattoo, etc.). It’s a great page-turner and loaded with interesting characters (some of which don’t receive enough page time – but Larsson was planning a ten book series).

The only problem I have with it is that a lot of the male characters are portrayed as seething with anti-female rage (aside from the main character, who is a thinly-veiled substitute for the author himself). They hate women and they abuse women. On the flip side, there are almost no female villains in the books (I can’t think of any off-hand). I don’t think either sentiment is very realistic… but maybe I’m looking for too much realism in a page-turning mystery series.

Last night, my wife and I ate at Chili’s, because Chili’s was donating 100% of its profits to St Jude’s Children’s Hospital on 9/27/10.

My question: We made a small donation that was added to our bill, as a seperate line item, to St Jude’s. What are your thoughts on making donations through a third party, like Chili’s, or sending a check directly to the charity?
- Robert

I’d prefer to make the donation directly, for three reasons.

First, if I’m making donations myself, I can research and choose the exact charity to give my money to. Some charities are definitely better than others – and some charities focus on areas that I value, while others do not.

Second, if I make donations myself, I can claim the tax deduction myself. If I donate $20 to a registered charity and get a receipt for that donation, that deducts from my taxes, saving me $5 or so (which I could then also donate). In other words, a $25 donation to a registered charity is roughly equal to a $20 non-registered donation at the end of the year when taxes are calculated. In your case, you seem to have been giving the cash to Chili’s, not directly to the charity.

This leads me to the third problem. A donation given through Chili’s mostly just serves as a PR campaign for Chili’s. They’ll use your money to make themselves look generous and good when they collect all of those donations together. I really don’t like being part of a corporate PR campaign, even if it does benefit a charity in the end.

I really enjoyed your game night post. However, it was pretty clear that you were trying to recommend games for new groups. It sounds like you’ve been board gaming for a long time. What games do you play the most in your group?
- Kenny

I usually keep notes on the games we play at our game nights. Over the course of the years that I’ve kept notes on this, our top ten most played games are as follows:

1. Settlers of Catan
2. Dominion
3. Race for the Galaxy
4. Ticket to Ride
5. Agricola
6. Puerto Rico
7. Modern Art
8. For Sale
9. Power Grid
10. Ascension

Just to be forewarn you, some of these games can be pretty complicated and confusing, but they all are well worth spending the time to learn the rules. The simplest one is For Sale; the most complicated is probably Agricola; the one with the steepest learning curve is definitely Race for the Galaxy.

My husband and I are in our late 20’s, renting in inner-city Atlanta for approximately $825 including utilities. Currently, he is employed full time in the government/transit sector and makes about $55K after taxes, with benefits. Since losing my job in March, I have freelanced and have a variable income, never exceeding more than spare change per month, and am currently looking for more work. I use my freelance money to pay my 4 credit card bills at a total of $200/month, for which the total combined limit is $2.5K (and amount owed, in fact, because I keep using them when I run out of money, after paying them. Revolving credit indeed!).

My husband foots everything else, and we otherwise have no debt. The only other regular expenses that I can think of are a shared studio space for him at $50/month, and our internet at $50/month. He has an emergency savings of about $6K, which we rarely have touched, but also don’t regularly contribute to it. Most of our leftovers at the end of the month sort of sit in his checking account, or get used on vetrinary care and other random small/medium expenses. All in all, we follow a budget and we’ve got money left over, but we’re probably using it relatively unwisely.

Through allowances in Georgia aestheticians requirements, I am certified to practice certain forms of hair care. However, I have no place to do so in our current living arrangements. I cannot practice in a salon environment without an aestheticians license (there may be more allowances, but I am unsure), or unless I work as an apprentice with credit hours being put toward licensing. Apprenticeships are hard to come by despite my haircare experience, so I have been looking into schools. We are car-free, so I can’t travel to many of the cheaper schools in the outlying sprawl of Atlanta. There are several schools that are easily accessible, however they are high-end schools with high-end tuition, starting at approximately $15K, all inclusive for the full course and tools.

My husband recently learned that his grandmother has socked away $16K for his education. However, he received scholarships for his BS, graduated three years ago, and has no plans to get his Masters. All technical education and continued learning courses applicable to his work (for which he has been promoted three times) are covered by his employer. On the off chance that we would need to move for his work, his experience in the industry is equivalent or greater than a Masters would be, and he makes for a very qualified applicant in his field. If I were to get licensed, I too could go anywhere with few limitations.

I know you might advise me to take some money out of that $16K to pay off and close my credit cards, or to put the money toward training. However, from the discussions we’ve had with his family about even accessing the money as a down payment, this seems to be a situation in which the $16K is *his* money, for *his* future. I came into this relationships with these cards, have racked them up since being laid off, and also have that whole “my responsibility” thing. I’m fine with carrying $2.5K for a while, and I hope to get more work to make larger payments and stop using them soon.

We have been window shopping properties for about a year, and are looking to make a move now that we’ve got the down payment. A lot of the houses and condos in the inner-city neighborhoods we desire are under $100K, and I have arbitrarily set our max at $175K after some possibly inaccurate calculations. At 5% for 30 years, $175K comes out to be less than what we are paying for rent and utilities. (Correct me if I’m wrong, please!) Though we plan to move sometime in late 2011, we haven’t sought out mortgage approval yet, so I know that we might need to adjust our expectations.

In order to make money in the hair industry, it seems I’d have to spend a rather large amount of money. It feels like a bad idea to take out a loan for a hair degree, especially when we are looking to buy a house at the same time. I’d like to think that we could balance both, but I would probably be unable to earn anything for at least a year while in training (the schedules are pretty rough.) Not as though I make much now, but with my freelancing, it’s at least possible to look for more income. Given all of this, should I pursue training and licensing while putting the house hunting on hold? Should we move to a cheaper rental (I’d hate to move to a “temporary” place)? A combination of these things?
- Jennifer

The “his money for his future” idea is really strange to me. For starters, since you’re married, your financial situations are tied deeply to each other. When you have to bend over to pay a debt, you’re not able to carry some other load, which he will have to carry (and vice versa). Secondly, if it’s his money, he should be able to do with it what he wishes. If you’re currently stuck in a revolving door at that credit limit, it’s a problem that affects you both.

The first thing you guys need to do is completely merge your personal finances. The idea of “his” money and “her” money, aside from a possible small pool of “spending money” for each of you, needs to go out the door. You’re in this together.

I only have a partial picture of your budget here, but I suggest merging your money, getting rid of any and all debts as soon as you can, and establishing small “spending money” pools for each of you that limit your free spending each month.

So, what about the schooling? If you have a hair degree, will you actually be able to use it to earn significantly more than you’re making now? Also, are you going to want to practice this trade over the long haul?

This is very much a trade program, meaning that it pays off if you can find work in that field and stay in that field for a while. If you’re going to invest in that degree, you need to be sure that the field is open to you and that you have the ability and desire to do it – and to do it well. Also, since your shared financial future is on the line here, you need to make absolutely sure your husband is fully on board with this plan as well – after all, you did marry each other. Don’t just insist on it, either – understand what he really wants here.

If all of that is in place, go for it and get that degree.

As for the housing, you should strive to live in the situation that has the lowest monthly cost of living. If you move into an ownership situation, you’re adding maintenance costs and insurance costs on top of what you’re currently paying. Can you afford that? On the surface, the mortgage is cheaper, but the mortgage doesn’t reflect the total cost of ownership.

My husband and I want to pay off our $17,500 (4.5%) car loan as quickly as possible. The payment is $327 per month. I am realizing that car loans must not be calculated the same as my mortgage. When I over pay on my mortgage, the same amount is still do each month, but I see my principal balance going down. With my car, if I send in extra money I see that I owe less (or nothing the next month) but my principal balance hasn’t gone down much. I always still pay at least the minimum. My question is, should we just pay the minimum and be saving up to make a huge payment later, or sending extra money each month? If we send in extra money, how will I know when I am close to paying it off?
- Jen

From your question, it seems as though the statements you’re getting in the mail are not showing that the balance of your loan is going down with extra payments. If that’s not happening, where is your money actually going? Is that extra payment appearing on your bill anywhere? Did your loan not allow you to make early payments?

If I were you, I would quickly call your lender and find out what is going on with your extra payments. Are they being held for future interest?

Once it’s clear as to whether extra payments are actually providing a real benefit to you, move forward as you see fit. If you have an emergency fund on hand, there’s absolutely no reason not to chase debt freedom.

I read with interest the letter from the older couple that wanted to adopt. Their situation was very similar to mine. We tried different was to conceive and didn’t succeed. It was costly and emotionally draining. My wife has pretty much given up but I have the strong feeling to be a parent. As we bought a house this past year, our money is tight. It kills me to think that there are people like us that want kids, and kids that want parents, yet I feel there is some kind of Grand Canyon that separates us. Outside of asking for donations, adopting special needs kids via my home state, or becoming a ‘big brother’, do your readers know of any other means? I coach and referee soccer each weekend…. And when I see the joy of the kids and their parents, I feel such a strong empty feeling inside.
- Ida

The first step I would take in your journey is to get your finances in the best possible shape. You’ve just bought a house and you’ve mentioned that money is “tight.” The truth is that adding a child to your life, no matter whether adopted or not, will put a serious strain on your monthly budget. If you’re having difficulty making ends meet now without a child, it’ll be much harder with a child.

Similarly, you need to both be sure that you’re on the same page with adoption. Your mention of the fact that your spouse has “given up” and your recent decision to stretch your finances for a house seems to indicate that you’re making life choices that move you away from having a child. Sit down and talk about this, openly.

If adoption is truly not going to work for you, your best approach is to simply be involved with youth organizations. Become a Scout Master. Stay involved in soccer. Get involved in refereeing basketball or umpiring baseball.

If you are going to adopt, one approach to consider is a private adoption, where an adoption lawyer helps you through the legal process of adopting a child that you locate yourself (for example, through advertising in newspapers, a la the film Juno).

The biggest obstacle I have to success is that I feel like everything in my life is a test and if I mess up, I’ll somehow fail at life. It makes me nervous about everything. Do you have any suggestions?
- Sam

For there to be a test, there has to be a judge, and only very rarely is someone actually judging you directly on what you’re doing right now.

Think about the people in your life. Do you immediately form a deep negative opinion of them if they make one mistake? Almost assuredly, you don’t (or you have a very small social circle and possibly some problems that need professional help to overcome).

If you don’t apply that strict criteria to others, why are you applying it to yourself? No one is perfect. All we can do is strive to do our best and accept that, yes, sometimes we don’t match up to that.

If you’re having difficulty reaching that own conclusion, you may find some value in seeking professional help through psychotherapy.

I was hoping you could help shed some light on this for me. My husband and I are considering refinancing our mortgage. Details: currently in year 8 of 30, 5.75 fixed rate mortgage, no PMI, with plans to stay in our house for a very long time. We both have excellent credit and no other debt, and our retirement accts are fully funded. We would refi to a 15-yr at about 4%. According to mortgage and refi calculators it would take 3.5-4 years to recoup the cost of the refi.

Seems like an obvious choice but here’s the thing: my stepdad told me that an added mortgage payment of $100 is equal to a 1% rate decrease. Obviously there are different sizes of mortgages and different interest rates on those loans so that advice doesn’t seem like it’s completely accurate. However, it does seem like there would be some truth to it, so I’m wondering if we should forgo the refi and just add to our principal payment (we are already paying an extra $100+ each month) thereby avoiding all the fees associated with the refi. Or does it make good sense to grab the lower rate?
- Angie

Your stepdad is trying to boil some fairly complicated math down to a simple rule of thumb that doesn’t quite hold true. So let’s walk through that math instead.

Let’s say that you have $200,000 left on your mortgage – I’m just making up a number so we have numbers to use. Your monthly payments on that mortgage would be $1,336.76 a month.

You could refinance that $200,000 into a 15 year mortgage at 4%. This would turn your monthly payment into $1,479.38 a month, but you would be paid off in just 15 years.

On the other hand, you could simply make a $1,436.76 payment each month on the mortgage you have now. This would move your payoff date up about three years, making it effectively a 19 year mortgage.

If you add $200 to the payment, making a $1,536.76 payment each month on your current mortgage, you would move your payoff date up another two years, making it effectively a 17 year mortgage.

So, your father is right in that adding $100 to your payment does effectively act as a reduction in how much you owe. However, it does not add up to enough to make up for the savings you’d get from refinancing to a 15 year at 4%. Compared to adding $200 a month to your current payment, the refinance would give you lower monthly payments and two years quicker to your payoff. Unless your mortgage balance is very, very small, you’re better off refinancing.

Like you, I’m obsessed with maximizing the value of my purchases. I like playing video games and I tend to focus on ones with as much replay value as I can find so that the “cost per hour” is as low as possible. What have been your biggest bargain games in this regard?
- Lucas

Excluding free games that I’ve played extensively, like Desktop Tower Defense, the biggest bang for my buck ever for electronic gaming probably has to be Civilization IV. I can’t tell you the number of late nights I’ve spent sitting there building an empire and thinking to myself, “Just one more turn!”

I asked my wife (a pretty avid gamer herself) what her best value game was and she said, without a doubt, Sim City 2000.

In terms of travel gaming – the kind you can easily keep in your pocket – my winner (again, by a long shot) is Advance Wars: Dual Strike.

What do all three games have in common? They’re all turn-based strategy games. For me, those kinds of games are the most fun over the long haul.

My husband and I are both 30 years old. No consumer debt, no student loans. We owe $48,000 at 5.5% on our mortgage – down by one third from when we bought the house 18 months ago. We pay an extra $1000 towards the principal every month.

We also are working towards funding a 6 month emergency stash, saving for a vacation, an eventual replacement car, etc. Everything is where is should be, all our ducks are in a row. Except! We have $25,000 just sitting in an account not earning any interest. When the market started to tank a few years ago we pulled it out and now much, much later the money is still just sitting there. Any advice?
- Nicole

If nothing else, that cash should be in an interest-bearing savings account instead of sitting there earning nothing. Even 1-2% interest is notable on $25,000 – that’s $250-500 a year.

If I were you, though, I’d take that cash and throw it straight towards your various goals, starting with the emergency fund. Get that fully funded and suddenly you have the monthly funds you were putting into that free to put towards the other goals. You’ll reach all of them much more quickly.

You have goals. You’re moving towards them. That’s really the best situation anyone can be in.

My husband and I met in high school and ending up having a baby at sixteen. Since then everyday as been a struggle. I am currently 4 months pregnant and just started a new job as a Pharmacy Tech in August. I am currently making about $1,200 a month and my husband makes about the same. Our daughter is in private school due to the state of public schools in our area, and that costs $550 a month. We live with my mother in law so we don’t have any household bills except food and cell phones. We are trying to buy a house before January. My husband has no debt but I have $15,000 worth of student loans and various medical bills. With my first check I paid about half of my medical bills off and have about $500 left in those types of bills.

I really need help deciding whether buying a house is a good idea before paying off my student loans. We haven’t been pre-approved for a loan yet but are trying to buy a house for around $80,000.
- Donna

With a child coming and a roof over your head for the immediate and indefinite future, I would recommend that your focus be on maximizing your monthly cash flow. That means, rather than taking on the additional bills that a house would give you, pay off that student loans and the other bills first and make sure you can cover whatever the costs will be associated with the baby on the way.

The best thing you can do is to sit down with your mother-in-law and sincerely thank her for helping you guys out. Without her help, you would be in a very deep pickle right now. Talk through the options with her and make sure that she is okay with you staying a bit longer.

If she is, then focus on getting your current debts out of the way and getting your baby delivered safe and sound without any additional debts – and also make sure that you have post-birth work lined up and start saving for a down payment. At that point, you should focus on finding a home.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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