Q My husband and I are in our early and middle 50s. We have one child, a junior in college. I have been not working since September (unemployment plus a very part-time job).
He wants to refinance for a 10-year fixed loan including pretty much all but my student loan (for tax purposes). We have done pretty much what we can to keep expenses down. We are doing pretty well. I am suggesting that we target certain bills, knock them off, see how we are doing in six months, then revisit the refinancing. I'm certain I'll have a job and my income will be used to pay down bills and for savings. Thoughts?
KATHLEEN
A You're money conversation highlights a fundamental divide in life and in personal finance: the trade-off between taking actions that create greater financial certainty now vs. keeping your options open as long as possible.
Clearly, it's an opportune time to refinance. Mortgage interest rates are heading lower. According to Bankrate.com, the national average for 30-year fixed rate mortgages is 4.37 percent, down from 4.52 percent last week.
Yet as you say, there's a good chance your monthly cash flow will improve significantly over the next two years. You will get a bump when you get a job.
Here's the thing: There's no right or wrong between the choices you and your husband are considering. The really intriguing and difficult personal finance choices are when values collide.
One way to think through a decision like this is to focus on risk or, more accurately, which risks you're more comfortable living with. It's an approach I learned from the late Peter Bernstein, a great translator of modern finance theory into eloquent books and other writings. For Bernstein, the key question is: "What is the downside? What could go wrong?"
