Assume Fox and Doris have hired you as their financial planner. Upon brief inves

Question

Assume Fox and Doris have hired you as their financial planner. Upon brief investigation, you collect the following information. The couple has been married for 5 years and have no children. They take expensive vacations several times a year. Both have good jobs and both save the maximum allowed in their 401k plans. The mortgage interest rate on their house is at 6 percent. The current mortgage rate today is 3.75 percent. Their credit card balance has been approximately $1,500 dollars for some time, and they make minimum payments each month. The couple. has a monthly net cash flow deficit of $98 dollars. what would be your recommendations to increase their monthly net cash flow?

Explanation / Answer

Consider the option to refinance the mortgage at lower current rates which will reduce their monthly cash outflow

At the time of refinance take loan higher than the current outstanding. Use the extra to pay off the credit card because credit card interest rate will be much higher than mortgage rates.

Now, as credit card would have been paid and the mortgage payments would decrease if tenure is kept the same. Payments would decrease because of lower rates if tenure is decreased and made to the current remaining tenure.
If they are left with more funds they should consider investing as well. This would thus reduce the outflow and hence increase the monthly cash flow.

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