Some talk of the rule of thumb that you shouldn't refinance if you can't save 2% on the rate. On a $50,000 loan it might not be enough, while on a $1 million loan generally .5% is enough. When you are going from a rising variable loan to a fixed rate, does it matter what the current savings would be? On the other hand, if you could get a great variable (low margin) would you take it and just break even? Be careful of rules of thumb, except when you have a hammer in your hand.
My dear mother had rules that began at sunrise and ended at sunset. One of my favorites was that you couldn't go swimming after you ate for one hour to avoid cramps. A side note, my mother not only couldn't swim, but she wouldn't even go into the water. It didn't matter the size of the meal or the size of the person eating. The rule was later revised to 1/2 hour, as she was losing control. She also couldn't drive, never learned and didn't want to, but nevertheless she was a masterful back seat driver. Rules or not, she was the best!
My father, who was born in this Country, but raised in Europe after his father died, had only one major rule: Never go out after you shower in the evening because you will catch a cold. If enough people had followed his rule, he could have single-handedly terminated evening dining and the movie industry.
Some people have rules that points should never be paid on a mortgage loan, while others feel you should always pay at least a point, if not more. A point is one percent of the loan and in most cases is used to buy down the interest rate. I feel that you shouldn't pay points on 30-year loans because you won't be keeping the loan. On the other hand, a point on a 15 year could make sense because you will make up the cost in a few years and most people hang on to the 15 year until it is paid off, or at least for about twice as long as those who take 30 year loans. There are other times where points make sense and I will cover those in future columns.
There are business rules, such as “he who has the most gold rules”, and fashion rules about not wearing white shoes before Easter and not after Labor Day. There are eating rules such as never mixing pickles and milk, and health rules about which foods are good for you and which are not. I had a business associate whose doctor told him to give up bacon and eggs, so he changed doctors. Last time I talked with him, he was doing fine in his late 70's.
In real estate, we talk about location, location, location, but sometimes forget that it can mean buying right smack dab in the middle of progress. When I was young, a corner house had premium built in, but now no one talks about it. Everyone talks about buying the cheapest house in the neighborhood, but I know many people who have done well with the most expensive house in the neighborhood, as everyone has a secret desire to be the one in the "castle".
Listen to the rules and make up your own mind. What works for one doesn't always work for everyone. Some rules are important, and as you could see, some are just fun to look back on. I like to try to follow the Golden Rule, and somehow a lot of things fall into place. Don't discount knowledge, however, especially in this complex world we live in.
One last rule and we’re done: Laughter IS the best medicine!