CLEVELAND, OH— According to a report, the average American shells out more than $62 per month at coffee houses. Surprisingly, that estimate that doesn’t even include the coffee they brew at home. With a tall pumpkin spice latte costing just over $4, it seems like a reasonable financial indulgence—but those morning coffee runs could potentially obliterate retirement and college savings funds, leaving caffeine lovers and their children to suffer major financial headaches in the future.
Brandon Feikle, a financing expert at Cleveland-based home financing company NLC Loans, says that when consumers don’t get down to the nitty gritty when they plan out their budgets, those coffee drinks can end up running people not just a measly $4, but up to $30,000 or more—around the price of a college education or a hefty contribution to a retirement account.
“We’ve really got to get people thinking outside the latte,” said Feikle. “Homeowners especially. When it comes to their houses, a lot of people tend to forget to pay themselves and instead end up lining the pockets of the banks instead of their own. FHA loan holders in particular right now.”
Immediate Gratification, Bitter Finish
American consumers as a whole tend to get really caught up in the present, and that’s a mistake that leads many down dangerous paths that never lead them to financial freedom, explained Feikle.
“We’re talking about putting monthly payments above and beyond the total cost paid for a specific product or service, such as a mortgage. While monthly payments are certainly important, they should never be the final thought when it comes to financing anything in the long term, such as a house.”
Those little expenses really add up, says Feikle, and aside from the caffeine jolt obtained from a latte, there is definitely no return on investment beyond the caffeine jolt.
“Once we show them how much they could be saving if they were to just cut down on their coffee habit by just a few drinks a week, they realize what a bitter ending it is to sink so much cash into something that, at the end of the day, does nothing for them except drain their wallets and add empty calories into their diets,” Feikle said.
Ditch the Empty Calories: Trim Your Mortgage Term, Fatten Your Wallet
So how, exactly, does Feikle recommend getting rid of those empty financial (and literal) calories and replacing them with something a bit more nourishing?
“It’s all in the mortgage term,” he said. “And homeowners have the opportunity to trade in their skinny-vanilla-cappa-latte-whatevers for a reduced mortgage term so they can start paying themselves and quit essentially robbing themselves of their retirement funds their children of potential college savings accounts.”
The math is actually pretty simple, when you break it down. Take a $100,000 mortgage with a 30-year term with a monthly payment of $506*. That same example loan– only with the loan term reduced to 25 years instead– has a monthly payment of $555*; a payment difference of less than $50* (less than what the average person spends at the coffee house each month).
The real beauty, however, is in the savings. In our example loan, the homeowner would save more than $15,500 in interest by shaving five years off their term. They’d also be saving all of those mortgage payments they wouldn’t have to make for years 26 through 30–which would have totaled more than $30,000.
$13 Pumpkin Spice Latte? It’s What You’re Probably Really Paying
“The real beauty is in the savings,” explained Feikle.” “Compare that 30-year loan with the 25-year loan and, even at the same interest rate, you’re looking at a savings in interest alone of more than $15,000. Add in all those mortgage payments you won’t be making for the last five years of the loan and that savings jumps to more than $30,000, including the less-than-$50 a month increase in the mortgage payment.”
Break down the math and suddenly that $4 pumpkin spice latte is actually costing about $13, once the lifetime savings is considered.
“Obviously, that’s going to leave a bad taste in the mouths of homeowners once they see what they’re really paying the barista,” said Feikle.
Term Reduction Makes Cents—and (Tens of Thousands of) Dollars
Homeowners can take advantage of this excellent financial savings strategy with a simple term reduction refinance of their mortgage. And now, since the changes in FHA guidelines have come into play, those with FHA loans can also achieve impressive savings by refinancing to reduce their mortgage terms—even if it’s not a full five year term reduction.
“Even just reducing your mortgage loan’s length by a couple of years can yield tens of thousands in savings,” Feikle said. “This way, homeowners can take advantage of the savings and we can find a monthly payment that’ll fit right into their budget in nearly any situation.”
Interested in learning how your morning latte can bank you $30,000 or more? Find out more here or call a personal mortgage advisor toll-free at 877-480-8050 for a no-obligation consultation.
*Loan scenario is used for example only. Your actual monthly payment will vary depending on your mortgage rate.