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YFP 190: 7 Ways to Reduce Your Monthly Housing Costs


7 Ways to Reduce Your Monthly Housing Costs

On this episode, sponsored by Insuring Income, Nate Hedrick, the Real Estate RPh, joins Tim Ulbrich to discuss 7 ways to reduce your monthly housing costs.

About Today’s Guest

Nate Hedrick is a 2013 graduate of Ohio Northern University. By day, he is a clinical pharmacist and program advisor for Medical Mutual. By night and weekend, he works with pharmacists to buy, sell, flip, or rent homes as a licensed real estate agent with Berkshire Hathaway in Cleveland, Ohio. He has helped dozens of pharmacists achieve their goal of owning a house and is the founder of www.RealEstateRPH.com, a real estate blog that covers everything from first-time home buying to real estate investing.

Summary

It’s no secret that housing costs, whether that be your mortgage or rent payment, make up a large chunk of many people’s budgets. For some people, housing can be 30% or more of their income. Nate Hedrick, The Real Estate RPh joins Tim Ulbrich on this episode to share 7 ways to reduce your housing costs. Reducing your housing costs allows you to have more disposable income to fund your other financial goals. It’s a win-win, right?

The first is downsizing your home. Many people think downsizing means moving into a tiny home or to an apartment that’s drastically smaller than where they currently live. If that’s what you want to do, that’s great, however downsizing can simply mean moving into a house that’s a bit smaller to help reduce the costs of taxes, insurance, utilities, and maintenance. The second way to reduce your monthly housing costs is to house hack. While house hacking may not be for everyone, this is a great stepping stone into real estate investing and can allow you to, hopefully, live for free. The third strategy is to get a roommate. Like househacking, this may not be an option for everyone, but having a sibling, friend, or even stranger live with you can allow you to significantly reduce your housing costs.

The fourth is geo-arbitrage, a concept that’s been picking up some steam over the years especially among those in the FIRE community. Essentially, in order to save money on housing costs, healthcare, or the general cost of living (think gas, food, taxes, transportation, etc) and get more for your dollar, you pick up and relocate to a new place. We know that the cost of living can vary greatly between cities but that your income may not increase or decrease accordingly, so this can be a powerful way to save money if it’s an option for you. The fifth strategy is to use Airbnb to increase your income. Although COVID-19 may make it difficult to put this in action at the moment, this is one to definitely consider when state’s start to re-open more in the future. Renting out your home, in-law suite, or room in your home can bring in extra cash and help you pay down your mortgage. The sixth way to reduce housing costs is to re-evaluate your homeowner’s insurance policy. Just like you’d shop around for car or disability insurance, you can do the same with homeowner’s insurance. You can also check in with your current company to see if there are any discounts available for installing certain security measures or for paying yearly vs monthly. The last strategy is to refinance your mortgage. With historically low interest rates, you may be able to significantly reduce your monthly mortgage payment. However, it’s important to keep in mind the total cost of the loan and any additional fees and costs you may incur when refinancing.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Nate, excited to have you back on the mic. How you been?

Nate Hedrick: Good, Tim. Thanks for having me.

Tim Ulbrich: It’s been I think a hot second since you were last on the show, Episode 178, where we talked about 5 lessons learned during your most recent investment property purchase. But I don’t want to assume that everyone listening knows who you are and what the Real Estate RPh is all about. So give us a brief background of you, your role in pharmacy, and how and why you started the Real Estate RPh.

Nate Hedrick: Absolutely. So I am a full-time pharmacist. I work with an insurance company here in Cleveland, Ohio. But I also moonlight or side hustle as a real estate agent. So I have my real estate license, have had that for four years now. And I work with local pharmacists and other health care professionals to help them buy and sell property here in Cleveland. And then that expanded a couple years ago into Real Estate RPh, which is a website that I run to educate pharmacists about the real estate process, help them find agents all over the country through our concierge service that we’ve partnered up with YFP for. So we do a lot of interesting stuff. And that’s really what my focus is on this year is really growing that network and being able to help more pharmacists around the country.

Tim Ulbrich: Yeah, it’s been fun to see that grow and more and more that are reaching out to you that are in that home buying process. So we will link in the show notes, obviously, to your site. We’ll also have some more information about the real estate concierge service for folks that want to learn more. We’ll come back to that throughout the episode. So today we’re talking all about ways — specifically, 7 ways — to reduce monthly housing costs. And I don’t think it’s any secret, I know from personal experience, that housing costs, whether that’s your mortgage or rent payment, make up a large chunk of many people’s budget. Now, check this out. According to the U.S. Bureau of Labor Statistics, people that fall into the top income quintiles, many pharmacists of course would be included in this, spend around 30-32% of their pre-tax income on housing. 30-32%. That’s a big chunk of your earnings that immediately are being spent on housing each and every month. And when you think about other competing financial priorities, the ones we talk about all the time on the show: student loans, child care, food costs and so — it may feel like there isn’t much money left to put towards other goals. So of course, thinking about strategies for reducing monthly costs I suspect is relevant for many. So Nate, when working with clients looking to buy a home, do you ever give them any insight on how much of their income they should aim to allocate toward those housing costs? And how do you determine that?

Nate Hedrick: Yeah, so you have to be a little bit careful as an agent, right? We are not financial advisors. You know, I don’t want to step outside my shoes a bit. But we always — whenever I’m meeting with a new client, I do make sure we talk early on about the importance of budgeting and making sure that they’re the ones setting the budget. I’ve had numerous clients come to me and said, “Hey, Nate, I got pre-approved for $600,000. What do you think about that?” And I said, “That’s great. What is your budget, though?” It’s a totally different question. So I always make sure that I bring that up, make sure that they understand that they need to set their own budget and then it’s my job to help keep them on budget. So if they come to me and say, “My budget is $300,000. I don’t want to spend a penny over that,” it is very easy for them to fall in love with a house that is $350,000. And it’s my job to make sure that they don’t go that direction, right? Especially if they’ve told me upfront, “This is our number. We want to stick to it.” I’ve seen it time and time again where if you start looking outside of your price range, all of a sudden, your price range goes up. So what I take my own role as is, “Look, I’m not going to tell you how to spend your money, but I’m going to help you stay on goal if that’s what you want me to do.”

Tim Ulbrich: Absolutely. And I can’t overemphasize enough, you know, what you’re pre-approved for and what the budget is likely are two different things. And so really taking some time up front, you know, what are you looking for? How does that fit in with the rest of your financial goals? Obviously biased on our end — working with a financial planner to help do that. And then you go through the home buying process and make sure that that home buying purchase fits in with everything else that you want to do. Nate, when you heard that BLS statistic, you know, 30-32%, of course we recognize we’ve got listeners all over the country. Cost of living here in the great state of Ohio is very different than cost of living up in the Northeast or out West. So we recognize that. But generally speaking, is that statistic, 30-32% of pre-tax income on housing, is that pretty common what you see among pharmacist clients?

Nate Hedrick: Yeah, if not a bit higher, right? I think that’s probably about right, but it tends to be that or more, I would say.

Tim Ulbrich: OK, makes sense. And of course, we have friends, family that are spending much more than 30% of their income on housing, maybe even spending 50% or more. And again, sometimes that’s subject to cost of living in certain parts of the country. So Nate, why is spending this much money on housing something that folks should — you know, I don’t know if avoid is necessarily the right word. Obviously for everyone it’s a personal decision. But that they should at least be aware of the impact that this might have on other parts of their financial plan.

Nate Hedrick: Yeah, absolutely. I think sometimes it’s easy to look at it and say, “Well, I can handle that payment today. It won’t be a problem. But what does that look like in five years? In 10 years? You know, are you going to be working as much? Are both of you going to be working if you have a spouse? There are a lot of things that you want to plan for the future, and getting yourself into the highest possible payment right up front kind of cripples some of the opportunities you have later. So you could easily become house poor, you could — honestly, I’ve seen pharmacists, I’ve talked to pharmacists, who feel like they’re living paycheck to paycheck because that housing cost is so darn much that they have to commit such a large portion of their income to basically staying on track. Up front, if you can make that decision to pare that back a bit, it makes your options that much better down the road.

Tim Ulbrich: Yeah, makes sense. And I think we have a bias and a tendency — I know I do — to tend to look at our future state through the lens of today, right? It’s just natural. So of course things could change, you know, incomes could go up, but also incomes could go down. So do you have margin? You know, what about financial emergencies and being ready for those things, things that we may not be able to anticipate happening at this point in time? So it’s obvious that reducing monthly housing costs, if we’re talking about 30% or more of pre-tax income, can have a huge benefit on your financial plan. We know that when it comes to the financial plan, obviously income and disposable income is what we need to be able to allocate towards our goals. So whether that’s short- or long-term goals. So let’s dig into seven ways that people can reduce their housing costs. No. 1, Nate, we’re going to talk about is downsizing. And I think when people hear that word, they immediately think of living in a tiny home, moving to an apartment that’s drastically smaller than where they currently live. And if that’s what people want to do, great. You know, we’ve talked with several pharmacists that have had very creative housing situations. I think of Rena Crawford that we had on this show talking about her housing situation out in San Diego and her creativity with renovating a van while she was completing residency. And certainly those are exceptions probably to the norm. But what do we mean here when we talk about downsizing? And why can this be such an impactful way to reduce housing costs?

Nate Hedrick: Yeah, I mean, anytime you’re talking about a larger home, more expensive home, it’s not just the house itself, right? You’re talking about more utilities. If you have more square footage, you’ve got more to heat, more electricity, all those different things go into it, more maintenance costs. If you’ve got a larger footprint of house, there’s more stuff that can break. So all of those things start to stack up. It’s not just a bigger house is it. So that’s kind of important. And what I find is that it’s not always about necessarily downsizing but making sure that when you start, you’re not upsizing, right? So downsizing can be a good move if you’re already in a house where you’re like man, this is really crippling our budget. We need to make a decision. But what I see most often is that people who take this ahead of time, before they ever buy their first house and think about OK, I don’t want to have to downsize later, what can I start with now and then work my way up down the future?

Tim Ulbrich: Yeah, that makes sense. And I think your point is a good one, being proactive — and not even just focusing on necessarily things like the square foot and the mortgage, of course, and those things but other things. You know, you mentioned taxes, you mentioned maintenance, you mentioned utilities. What about the lawn care? And really considering everything that’s involved — could be association fees and other things. How do clients that you work with — you know, I know one of the things folks may not necessarily be as obvious is OK, what is it going to cost me all-in per month? You know, of course you’ve got the mortgage and insurance and they’re thinking about those things. But they may not necessarily be thinking as much about utilities and other things. Of course, taxes are readily available information. I mean, is this information that’s typically forthcoming from the seller? Do people have to prod to try to get some utility payments and things like that to be able to best estimate what this is going to be for their budget?

Nate Hedrick: Yeah, I usually recommend to my clients to ask. I’ve seen some sellers — and I’ve done this once — where we actually posted, not our bills exactly, but I had the seller pull their previous utility bills and say, “Look, let’s just put this number out there. That way a potential home buyer can feel good about it, that it’s going to be $300 a month for all this,” or what have you. That’s definitely something that we’re seeing people ask for, and it’s a great way to get a true estimate of what that particular property might be costing someone.

Tim Ulbrich: Awesome. And I think it’s worth mentioning here, of course when we talk about real estate transactions, you know, there’s costs that are involved. So making sure you’re factoring that in. If you’re going to pick up and move, how great — this is a conversation my wife and I have all this — you know, what’s the true net difference, right? So you might look at, hey, we’re going to sell for $350,000 and we’re going to buy for $250,000. But when you really consider the transaction costs, obviously the fees involved, the moving expenses, really trying to evaluate this and understand what the net difference is. So that’s No. 1, looking at downsizing. No. 2 is house hacking, I think a topic that you and I love, love talking about, one that we have both said on this show several times, “Man, if I could do it all over again, I would have house hacked.” So something we talked about Episode 130, I had Craig Curelop on from Bigger Pockets, episode talking about house hacking your way to financial freedom. And that episode I thought was a great overview in his book of the house hacking process. And it’s a real estate investing strategy that we love but also can serve your primary home needs. So Nate, break it down for us. For those that aren’t aware or perhaps a refresher, what exactly is house hacking? And how can it be a powerful way to reduce housing costs?

Nate Hedrick: So house hacking at its core is the idea that you are buying a property in some way, shape, or form that you are going to live in part of it and you are going to have a renter live in another part. And so traditionally with a house hack, you’re looking at like a duplex, a triplex, or a quad, which you can buy as a — the bank looks at it like a single family home. But you can live in one unit and then you can rent out the others. And ideally, with a proper house hack, you’re having that renter basically pay for your mortgage or pay for your mortgage and your taxes in an ideal world. But the idea is that if you can live in part of the house, rent out the other part, you’re going to have far less housing expenses because you’ve got someone else paying for it for you.

Tim Ulbrich: Absolutely. And I think it’s certainly can look very different for the reasons you mentioned. And one of the things I like about Craig’s book on house hacking, he gives a lot of different examples from his personal situation, others that did it, that I think will give folks a variety of ideas about what house hacking may look like for them and how it may or may not fit into their home buying goals. So Nate, have you worked with clients that have done a house hack? And if so, what was their motivation?

Nate Hedrick: Yeah, actually, I’ve got one right now that I’m working with locally here in Cleveland that’s looking to house hack, which is fun. We’ve been doing — running numbers on houses recently and looking for opportunities. And right now, this pharmacist is actually living in a house with a couple of roommates, wants to buy his own place but doesn’t want the housing prices or the housing expenses to jump dramatically, right? If you go from living in a $400 a month room or whatever the cost is there to this big housing payment, it might be a shock to your budget. But if he can transition to only a couple hundred dollars because the house hack is paying for some of that cost, you can get your own place, start building equity, all the advantages of owning a home without this huge uptick in expenses. So I’ve been working with him to try to find that opportunity. And then we’ve got a ton of concierge clients throughout the country that have done this. I think we’ve talked with a couple here and mentioned a couple in the past that have primarily been searching for a house hack when they’re looking for their first house.

Tim Ulbrich: Love it. And speaking of roommates, let’s talk about roommates. No. 3 here on our list of seven ways to reduce your housing costs, No. 3 is get a roommate. Nate, I thought this wasn’t college anymore. So similar to house hacking, getting a roommate obviously could be a way to reduce housing costs. Talk to us about the role that this can play.

Nate Hedrick: Yeah, especially again, I think people overlook this because like you said, once you buy a house, like I can’t — I can’t go backward, I can’t have a roommate now. But it’s a great way — if you’re in a personal situation where it makes sense, it’s a great way to reduce your expenses for both people. And you can take this as simply as, you know, I’m going to have my brother move back and he’s going to pay me a little bit of rent, or is as severe as putting an ad on Craigslist and having a stranger come live with you. You know, we’ve actually gotten a chance to talk to a couple of individuals here that are experts in this, I would argue. Ryan Shaw on Episode 173 knows all about how to deal with roommates and keeping them sane. And then Bryce Platt, one of our concierge clients that actually went out and bought — Episode 160 for those that are looking for it. He actually went out and bought a condo basically that had — was set up to have three other roommates with him. And so that’s part of that process. So it’s not uncommon anymore, and it’s a great way to reduce your overall expenses.

Tim Ulbrich: Yeah, and I think it’s worth, you know, the reminder or maybe the obvious statement of your first housing situation will likely not be your forever situation, right? So whether it’s a roommate directly living with you or in a situation like Bryce, that may work for awhile and then you decide you may move on. But now you’ve got an investment property that perhaps you can hold onto as well. So that’s No. 3, get a roommate. No. 4, perhaps the most interesting, my favorite on the list, but also likely very unpopular to some folks that love where they live. This is geoarbitrage. And Scott Rieckens, author of “Playing with FIRE,” mentioned this on the podcast last week, Episode 188. And I think it’s such an interesting way to reduce your housing costs. And I think this actually stems back to some of Tim Ferriss’ work talking about geoarbitrage. So Nate, what is geoarbitrage? And how can it help someone’s budget?

Nate Hedrick: So it’s a concept that basically you are — and we’re seeing a lot of this grow in the FIRE community, like you mentioned Scott but many others in the FIRE community are embracing this idea that in order to save money on housing costs or the cost of living based on a certain area, you basically you pick up and move to a new place. And we’re seeing this really taking off, especially with the changes in how people are working during the pandemic and hopefully after the pandemic is over. Work from home is just totally different than it’s ever been before. And you can basically do your job from anywhere now. If Option 1 is to live in downtown New York in a tiny apartment for a huge, huge cost, but Option 2 is to do that exact same job in Cleveland, Ohio, here, your costs go down dramatically. And so a lot of people are looking at this like, are there other areas that I can live in that I can either find a better job or keep my same job and work remotely that are going to improve my overall housing costs without dramatically impacting my life?

Tim Ulbrich: Yeah and again, I think this is not a forever situation, right? I know I’ve brought this up to various groups when I’ve been speaking before. You know, often you get that look of like, Tim, are you really suggesting that I pick up and move? You know? And it’s not necessarily for everyone, right? Sometimes there’s family situations, other things, where this is not even a possibility for a variety of reasons. But I think sometimes, this is a way to think a little bit more creatively, especially for those that might be in an area where jobs are also saturated. You know, if you could get to a lower cost of living area and perhaps open up some additional job opportunities, this might be something to consider while also accelerating your financial goals. And I think, again, it really depends on one’s personal situation. But I think what makes this so attractive for pharmacists, Nate, you know this, I know this, our community knows this, we do see incomes change slightly in higher cost of living areas but nowhere near what they should proportionally to the expense of those areas, right?

Nate Hedrick: Right. Absolutely.

Tim Ulbrich: So an ambulatory care pharmacist in Cleveland, Ohio, and an ambulatory care pharmacist in San Diego, that salary difference — while there likely is one from my experience in talking with folks — it does not represent the cost of living differences between those two areas.

Nate Hedrick: Definitely.

Tim Ulbrich: And so you know, I think that because of the nature of how that is treated with pharmacy jobs, this concept might also be attractive. And check this out for a minute, Nate. We pulled some data from RentCafe. The average rent for a 700 square foot –703 square feet, to be exact — in Manhattan is around $3,800. But the average rent for a slightly larger place, 883 square feet, in Little Rock, Arkansas — shoutout to our community in Arkansas — is $830.

Nate Hedrick: There you go.

Tim Ulbrich: Of course, Manhattan and Little Rock are not the same thing. Very different cities, right, in terms of what people are looking for and so on. But it just highlights, you know, what does that mean for monthly cash flow, what are your options. And you know, when I see $3,800 a month for 700 square feet, you and I both know what $3,800 a month can buy in Ohio, right?

Nate Hedrick: Seriously. Yeah, it’s crazy.

Tim Ulbrich: It could go a long way. So again, you know, obviously leaving family, friends, your job can be tough. Certainly not for everyone, but I think it’s one thing to consider and for — you mentioned the reasons of mobility now with some jobs having some more remote capabilities. So that’s No. 4, geoarbitrage. No. 5 is Airbnb. Nate, this is one that I think really pushes people to be creative in how they are cutting expenses or bringing in additional income. And we had Hillary Blackburn on Episode 121, where she talked about creating another stream of income as an Airbnb host and specifically talked about how her and her husband rent out their Nashville home for about $600 a night. So talk to us about how folks can use Airbnb or a similar model, of course, we’re just mentioning Airbnb, and use their home to bring in some additional money.

Nate Hedrick: Yeah, I think it’s gotten a little trickier during COVID having somebody in your house or what have you. But still, the idea there is really solid. If you can use the space that you already have — and maybe this is an extra bedroom or maybe it’s a whole extra in-law suite or a pool house or you name it, right — if you’ve got a way to rent out some of that portion of that property that you already have, and it’s a desirable area especially, you can pull in a lot of extra income to offset some of those housing costs. And again, like you talked about Nashville being $600 a night, if you’re in an area that people want to travel to, especially as things start to open back up, I really think that there’s opportunity there for you to get some serious income for that place.

Tim Ulbrich: Yeah, and again, this is one that may make sense for some, not for others. We’ve got an Airbnb calculator on the site. You can see, you know, roughly what you may be earning as an Airbnb host. That’s YourFinancialPharmacist.com/airbnbcalculator. We’ll link to that in the show notes. So that’s No. 5 on our list of seven ways to reduce housing costs. No. 6, Nate, re-evaluate your homeowners insurance policy. I just did this, so this one is top of mind for me. But I think this is something, you know, we haven’t talked a whole lot about on the show but certainly could be a way that folks may be able to shave off money off of their monthly budget, especially if their policies may have creeped over time. And because of escrow and other factors, they may not be aware or as closely aware as they could be of that. So talk to us about re-evaluating your homeowners insurance policy.

Nate Hedrick: Home insurance policy, if you have a mortgage, right, it’s really one of the only things that you can change. Your taxes are consistent, right? The county’s going to set those. The mortgage and the lender payment is set by the lender. HOA fees, that’s all fixed costs. But the home insurance policy, kind of the other piece that usually gets wrapped into that, is somewhat flexible. And it’s not — it’s not as common to mess with the home insurance policy as someone might shop around for like car insurance or disability insurance or life insurance.

Tim Ulbrich: Right.

Nate Hedrick: But realize that you can actually make quite a bit of difference with your home insurance policy. And it can change dramatically based on a number of factors. So if you change your deductible, for example. If you go from a $500 deductible on a home insurance claim to $1,000, you might save 25% on your home insurance policy in some cases. The other thing I’ll see a lot with home insurance is that if you are what’s called escrowing your home insurance or your housing insurance, a lot of times that bank will say, OK, well, we’re going to pay — and escrowing, just briefly, is that you actually pay the bank, you pay the mortgage lender to handle paying your insurance company for you. So usually you’re giving them money every single month as part of your normal housing payment. They’re taking a portion of that, setting it aside in an untouchable account called an escrow account, and then from that account, they basically pay your insurance company. But what I’ve found is that if you have that money in escrow, you don’t get a lot of flexibility with how that payment works. And if you can pull that out — and some lenders will allow you to do this free, some may charge you a small amount — but if you can pull that out, you can get even more creative with how you pay it. I’ve noticed that if you pay your home insurance premium monthly versus yearly, you can get a huge discount by paying it all up front. And so if you know you’re going to be there and you have the funds to do so, you can actually pay it Day 1 of the year and get a whole year’s worth of that payment taken care of at a much lower rate. So there are more flexibility here than I think people really realize, but a lot of it comes down to what are you allowed to do with your lender? And what are you willing to do in terms of that negotiation process?

Tim Ulbrich: Yeah, and I think too — great stuff there, Nate — I think it’s important to note, as you mentioned, these policies vary, you know, in terms of what they coverage, what the coverage includes, obviously personal belongings, other features of policies, and one thing I notice in this process, which certainly makes sense for those that have gone through this one or more times before, is that it’s easy to get focused on price shopping and not necessarily do an apples-to-apples comparison on coverage. So you know, some of these policies may present themselves as oh, well, you know, we could save you $300 a year or whatever. But when you look at the close details of the policy, you might be changing some of your coverage components. So I found it helpful, if you want to keep coverage the same, essentially as you’re going out and getting quotes, say, “This is my coverage. These are the eight things that are included. Here’s my deductible, here’s what’s covered in the policy. And basically give me a quote for this coverage.” You know? So you can do an apples-to-apples type of comparison.

Nate Hedrick: And watch because some will call things something different, right? They’ll have this special feature with Company A versus Company B and it’s literally just the same thing but with a different name. So watch out for that. The other thing I wanted to mention too is that some of them will offer discounts based on certain parameters of your home. So if you live in a disaster-prone area, ask them about what you can do to your homeowners insurance policy by doing some disaster-proofing. Maybe it’s adding storm shutters or maybe it’s actually a security discount. I’ve seen where if you put in electronic locks or deadbolts, just simple deadbolts versus a regular door lock, they will give you a discount on your overall insurance policy. So there are a number of things you should ask about too, like is there any way for me to get a discount on this? What can I do to improve this?

Tim Ulbrich: Yes. Always ask for a discount, right? Yeah, and as some of you are looking to shop around, you know, certainly many ways that you can go about this. Policy Genius is somebody we’ve talked about before, allowing you to compare life and disability insurance quotes, now also has a platform to compare homeowners insurance quotes. Also, renters insurance as well. If you go to PolicyGenius.com/YourFinancialPharmacist, you can learn more. So that’s No. 6 on our list of seven ways to reduce your monthly housing costs. No. 7 is refinance your mortgage. Again, something that’s near and dear to me. We went through this process last summer. We’ve talked about how low rates have been recently for purchasing a home, for refinancing your mortgage over the last year. Nate, talk to us about what mortgage refinancing is and how this can ultimately lower monthly housing costs.

Nate Hedrick: Yeah, so think about refinancing as basically resetting or getting a new loan. Effectively, what you are doing is you are clearing out your old loan, someone is paying that old loan off, and you’re establishing a brand new loan. So it’s similar to — we’ve talked about student loan refinancing. It’s the same idea, right? We’re paying off what you currently have with Lender A, and we’re moving that to Lender B at a new rate or at a lower monthly payment. And so the goal here would be obviously to lower the interest rate and then hopefully as a result, your overall payments are going to go down. So you’re going to eliminate your — hopefully maybe eliminate PMI if you have that in place today. You can, again, drop your interest rate from maybe a variable to a fixed rate that is much lower. You could lower the term over which you’re paying that loan. So you could go from a 20-year rate to a 15 or a 30-year to a 15. And now your overall expenses for the longevity of that house are going to go down. So there are a number of ways that you can use refinancing to cut your costs. But if you’re looking to lower your monthly housing payment, a lot of times it comes down to finding an interest rate that is lower than what you have today and finding a term that makes sense for your financial plan and is less than what you’re paying already.

Tim Ulbrich: Yeah, and I think it’s, although obvious, worth reiterating one of the traps that I see folks often falling into is yes, you know, you can lower the monthly payment, but if you’re extending out the term, keep in mind the total cost of the loan, right?

Nate Hedrick: Yep.

Tim Ulbrich: So trying to make this as apples-to-apples as you can. If you’re already five years into a 30-year term, and you refinance out to a 30-year, obviously you’re tacking on five more years. So yeah, monthly payment might go down, likely will if interest rates are lower, but what does that mean in terms of the total amount paid over the life of the loan? And keeping that in mind as you’re evaluating various options.

Nate Hedrick: And don’t forget, you’ve got closing costs as well in there, right? So you’ve got to make sure that the actual process of buying that loan, you’re getting a new loan but there’s going to be closing costs associated with that to factor in as well.

Tim Ulbrich: Absolutely. Great stuff, Nate. Seven ways to reduce your housing costs, certainly a topic for the reasons we mentioned at the beginning I think folks are interested in. This won’t be the last time that we hear from you and so if you’re listening and you’re looking to buy your first home or you’re looking to move and you want to work with an agent, you don’t currently have one, as Nate alluded to, we’ve got the concierge service working with Nate. It’s free to our community to work with Nate, who will help get you connected with a realtor in your area. And you can go to YourFinancialPharmacist.com, click on “Buy or Refi a Home” at the top, and once you do that, you’ll see an option to find an agent and that will get you connected up with Nate. Also, if you’re looking for a loan, looking to refi your mortgage, want some additional information, again, YourFinancialPharmacist.com, and then you can click on “Buy or Refi a Home” and get some additional information. So Nate, as always, appreciate your time and expertise and thanks for your contribution on the show.

Nate Hedrick: Thanks for having me.

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