April 17, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

in·cre·men·tal – adjective

1. relating to or denoting an increase or addition, especially one of a series on a fixed scale.

“Incremental changes to the current system”

2. in Mathematics: denoting a small positive or negative change in a variable quantity or function.

Being a type A personality, the following statement is a bit difficult for me to admit: I was better at managing “the incremental” before I was married. (There, I said it.) Furthermore, my incremental management lost a bit more control as we started to have kids (thank G-d). Formula: Marriage + Kids = incremental road slide (which increases as kids get older). Now, I consider myself to be between an A- and B + personality working my way back to A.

Question: What exactly is considered the incremental?

Answer: Unanticipated extra expenses that pop up, although, with time, we come to expect them – thereby eventually converting the incremental to the expected general expense category. In other words, the unanticipated expenses become the anticipated.

Q: What might fall into this category?

A: Music lessons, sports lessons, the latest clothing, vacations, sleep away camps, simcha gifts, unexpected home maintenance repairs, appliance breakdowns, auto maintenance and fixes, medical outofpocket expenses, surprise weekend guests, technology (phones, laptops, speakers, headphones), birthday parties, increases in gas, electric and real estate taxes, kids eating with friends (in restaurants!)… you can add your own to this list.

Q: What do most of us generally anticipate as living expenses?

A: Private school, a year in Israel (now 2-3 years there, plus trips and living allowances), mortgage and real estate taxes, food, electric, gas, clothing, landscaping, cars, insurance (auto and home), phone, medical (at the least, use of the monthly premium plus the deductible to start), simchas (celebrations), discretionary donations.

So where does our financial challenge begin? Is it that we see so and so building a mini mansion and we start thinking, “I want one,” or that our house is too small (or is it)? Or is it that your kids go to their friends’ house and now want you to get a pool? Is it that if you stay home in January your kids think poverty has hit? Can it be that you only have an iPhone 11 and no MacBook Air? What, not going to Israel for the summer?

Home for Passover, huh?

We single out the cost of private education and call it a tuition emergency, although in today’s world I would call it a necessity, but the reality is that everything is expensive, such as camp, tutoring, food, utilities, health insurance and—ast but not least—owning a home. I’m not even talking about money, or affordability, just referring to the new (at least to me) expectations that are the new normal surrounding us.

What have we created? OR the bigger introspective question is, did we allow our outside surroundings to create us?

I believe the challenge is not so much about our adult desires. Let’s remember our Sages dictum: who is happy? One who is happy with his lot. I am. You may be, but the real challenge is trying to convey that to our children. The real challenge is that we love our kids so much that we want them to have what everyone has. Let me repeat WE WANT OUR KIDS TO HAVE WHAT EVERYONE HAS, and there lays the pull, the challenge and the rub.

If you are blessed with substantial means, that’s beautiful, but if not, trying to live like the Jones’s may lead you to step in quicksand. Look at our economic history in the last 12 years and you’ll see nothing is guaranteed, and I mean nothing! Neither wealth nor health.

In my opinion, if you are on a budget, now is the time for economic preparedness – not stretching towards more or putting parents into a financially stretching position. While my point may seem contrary to the mortgage lending industry norms, which are always pushing the advantages of borrowing more and more, to buy larger and larger homes or to buy another vacation home, this is precisely the point I want to make. We have lived in economic uncertainty for quite a while. The negative effects of “the incremental” is increased credit card debt; it draws on existing equity lines, reduction of savings, refinancing at higher rates, the selling of assets prematurely and stress and pressure. So what can one do to eliminate the growing debt before it puts one in a deep hole?

Now may be a good time to review one’s financial picture. Save, if possible, consolidate debt and lower payments, pay down an existing mortgage, and build equity in your homes. It’s a time to really think about how to best use the money you have available before you borrow. I don’t believe it is a time for increasing debt without a carefully calculated reason and payback. In the final evaluation, I do believe that “less is more.”

Many people have taken advantage of the great rates we had prior to the current rate increases. If you like where you live, don’t give up your current mortgage unless, after crunching numbers, there is a quantitative and qualitative reason for moving. (They don’t always go hand in hand.)

In addition, I would also suggest that you look into the following incremental avoidance and offset options:

PMI (private mortgage insurance) removal: If you are paying mortgage insurance, the monthly mortgage insurance can be terminated. It’s important to understand how it terminates so that you can make sure your payment drops and the monthly mortgage insurance is removed (even though it is supposed to be automatic at a certain point). Call your lenders’ servicing department for direction about their process for PMI elimination. This may save you some cash without the expense of refinancing.

Debt consolidation, cash flow help and equity acceleration options: Refinancing is not only a rate-based decision and there are many reasons to consider refinancing.

1. Damaged credit may have improved. Improved credit scores open the door to possibly refinancing at a rate better than an existing rate.

2. Credit card debt, as well as student debt, can be super expensive. Number crunch and see if a new loan or equity line can improve your cash flow. (Forget about the rate itself.)

3. It may be that you have paid down your 30-year fixed rate enough to switch to a 15-year fixed rate, even at a higher rate, and knock off your existing loan in 15 years.

ARMs (adjustable-rate mortgage) fixed rates are up, but an alternative and great solution may be to explore adjustable-rate mortgage products. Most don’t adjust for five, seven or 10 years and can make sense for homeowners with lots of equity if they plan to downsize or pay off the loan within that respective time frame.

Our feeling is that if you’re aiming to pay off your mortgage in a short period of time you may be able to save some cash. Real savings happens if you pay off the loan within the five to ten years before the ARM adjusts,effectively turning it into a very short, very low-rate fixed mortgage (which is great if you plan to move in the next several years or if you want to pay off a big mortgage before you retire).

4. Reverse mortgages:The reverse mortgage can be used to pay off an existing “forward” mortgage to create additional cash flow and also strategically be a tax-free income source to defer taking social security so that you can get the maximum social security payment at 67.

No longer a last resort product, a reverse mortgage is a very sophisticated tool to support sequences of return plans.

A reverse mortgage acts as a credit line bridge and helps you avoid having to liquidate your portfolio when it’s down, and pay taxes. It gives you the ability to draw on a tax-free line of credit and offers you the option of waiting for the market to rebound. In addition, the unused portion of that equity line has a growth factor.

5. Low credit scores cost big bucks! Work on increasing your scores. I have assisted borrowers with mortgage advice for over 30 years and the one conclusion I have come to is that Shlomo Hamelech(King Soloman), who wrote Kohelet (Ecclesiastes) was right on target. Hevel havalim (vanity of vanities): Happiness is to be found in being, not in having. “If only” is what I have to say. Easy to say, not easy to ingest.

If you are blessed with wealth, enjoy it, and may you be guided to use it wisely. This article is really for those on a tighter budget. While it says in the Torah, “Thou shall not covet what your neighbor has,” it seems that while the word covet is quite a strong one, it’s human nature to want what the “Joneses” have. Human nature is what it is, and obviously God knew the challenge we regular folks would face.

May God bless you and your families for a healthy, happy, meaningful Passover!

Shout out to Yitzy (Jacob) Solomon, CFP, who coined the term “the incremental” and the inspiration for this article.


Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. & www.Mortgagegenius.com. He is a real estate mortgage banker & business financing expert with over 33 years experience. He currently has 214 five-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]

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