Friday, February 6, 2009

Stupid Tax

I take very seriously Paul's instructions to Timothy in 1 Timothy 3 regarding the qualifications of leadership. Verses 12-13 could summarize the chapter, "A deacon must be faithful to his wife, and he must manage his children and household well. Those who do well as deacons will be rewarded with respect from others and will have increased confidence in their faith in Christ Jesus." Men and women who make leadership decisions at TFC are people who live out the expectations of 1 Timothy 3.

Of course, a huge part of this is finances. A person's finances is an extremely important (though certainly not exhaustive) indicator of a person's spiritual maturity. So, I've always tried to model healthy financial habits before my congregation. At a conference last year, I heard Darrin Patrick, founding pastor of Journey Church in St. Louis, say that planting a church is like photocopying yourself and passing out the copies. That the church and people will eventually take on your strengths and weaknesses. A year later, that still terrifies me. I'd have to say that it's true, though, both positively and negatively. Our Point Team is currently trying to restructure some things, to help manage my weaknesses and let me spend more time on my strengths.

But one way that's evident is in our church's finances. Yes, we've taken a major dip in the giving the past several months and we're looking like we'll end the year in the red. We do however, have an emergency fund to sustain us for awhile and we have NO debt. I'd like to think that the fact that Erin and I have an emergency fund and a small school loan as our only non-house debt has resulted in the church following our example. I've even had the privelege of doing some one-on-one work with some families; helping them create a spending plan using the spreadsheet Erin and I developed and helping them attack debt and increase giving. I acknkowledge the huge responsibility of modeling healthy behaviors for my congregation, though it makes me wet my pants in fear.

A couple weeks ago however, the therapist I was talking with during my study leave told me that people admire strengths from a distance but are attracted to and find healing in weakness. So, let me share about the Stupid Tax we've paid the past couple of years.

When we bought our house in July of 2004, we did two not-very-smart things with our mortgage; an 80/20 loan (where you take out a home-equity line of credit to finance the downpayment) and a 7/1 ARM (the mortgage rate readjusts after 7 years). We had no idea the 20% was a bad idea and because the future of TFC seemed so unpredictable (we had only 1 family in our church besides us), 7 years felt like a lifetime away. But we finally woke up to the fact that it would eventually arrive.

We worked hard at paying off the 20% and between the money we paid on the HELOC and the slight increase in equity, we were able to refinace with a regular 20% down mortgage. But I spent a few years kicking myself when I realized we could've had an awesome rate on a 30 year mortgage had we not gone with the ARM. Last December we refinanced our house to get out of the ARM and that's when our Stupid Tax rate went through the roof!

I don't know why, but I thought it would be worth saving about $85 a month on our mortgage payment by doing a 30 year loan rather than a 20. So added the extra 10 years and in the process settled for a higher interest rate. 14 months later, we've paid thousands of dollars in interest payments and only about $1,000 on principle, since interst in front-loaded. OUCH!

But after mourning that lost money, we're going to refinance into a 20 or 15 year mortgage. We could get a 5.35% rate on a 20 year mortgage (raising our payment by about $80/month) or 4.85% on a 15 year rate (raising our monthly payment by about $180/month). The extra $100 or $200 a month we need to find will be worth the tens of thousands we're saving at the back-end of our loan. Yes, we could discipline ourselves to pay off our house early, but I'm not sure we'd have the discipline to do that. The lower interest rate of the shorter loan will also mean we're throwing away less money on interest payments.

We're going to bite the bullet, realize we wasted a year of payments and set ourselves up to have a paid-for house between the ages of 45 and 50. Our 30th year wasn't too smart financially but it wasn't fatal, either. The Stupid Tax has already been paid, nothing we can do but move ahead into a better future.

3 comments:

David Brush said...

Just remember each time your finance your debt/interest ratio gets jacked up higher too. :-)

Lower interest is always good though.

joe k said...

That's a good idea unless your income decreases significantly, as when someone stays home with the kid. Just a thought.

Rachel Shaffer said...

glad to know I'm not the only in our family that makes money mistakes. Maybe you're human now...maybe.