Last winter, Kris and I refinanced our mortgage. Interest rates had dropped, and it seemed like a good idea to make the leap. Though it took us a couple of months to actually pull the trigger, we finally ended up cutting the interest rate on our loan from 6.25% to 4.96%. According to sites like ShopRate and HSH.com, mortgage rates are still low, with loans available in the low- to mid- four percent range.

While doing research for Chapter 10 of Your Money: The Missing Manual (”House and Home”) over the past couple of weeks, I’ve looked up a lot of info about refinancing mortgages. Ultimately, I had to cut most of this material (replacing it with a single paragraph).

Rather than let what I learned go to waste, I thought I’d share the basics here at GRS. Much of this came from Tim Manni of HSH.com. (Manni is the author of HSH’s daily blog which concentrates on the latest developments in the mortgage and housing markets.)

Manni says that the obvious reason people refinance is to save money. They want to lower their interest rates. That said, people do refinance for other reasons, including:

• Changing mortgage types (from an adjustable rate to fixed rate, for example)
• Consolidating debt (which isn’t always the best move)
• Tapping home equity (while avoiding a second mortgage)

Manni says that the old rule-of-thumb was to refinance when mortgage rates had dropped 2% below your current loan. “But waiting around for mortgage rates to drop two percent can wind up costing you time and money in the long run,” says Manni. “For some homeowners, refinancing to a new interest rate as little as half a percentage point less than your current rate could be enough for substantial savings.”

How can you tell if refinancing makes sense for your situation? Easy. Crunch the numbers. HSH.com and U.S. News & World Report have a refinance calculator, for example, that lets you calculate your change in payment, and shows you how long it will take to recover any costs associated with refinancing your mortgage. (There are dozens of other refinance calculators out there that will provide the same basic info.)

Manni says that it’s important to understand the costs involved in refinancing your mortgage. “The more it costs you to get your new loan, the longer it will take to recoup those costs. It’s important to have your refinance work to your advantage.”

Closing costs for a refinance are about the same as for a normal mortgage, or can even be higher if you don’t have much home equity. If your goal is refinance to a lower interest rate, HSH.com’s Vice President Keith Gumbinger says, “It’s generally best to refinance when the savings from your lowered mortgage rate will allow you to recoup the price of closing costs in 24 months or less.”

When Kris and I refinanced in March, for example, we calculated that making the scheduled payments, we’d repay the closing costs in less than a year. (But because we paid more than the scheduled amount, the closing costs have long since been recovered.)

As with all mortgages, be sure to read the paperwork if you refinance. I know it seems insane to read 100+ pages of legalese, but if you don’t read what you’re signing, you have nobody to blame but yourself if something goes wrong.

I’m curious: How many homeowners out there have refinanced this past year? Have you considered it? Why did you choose (or not choose) to refinance your mortgage? Do you think you might refinance soon? And how many people are worried about a possible rise in interest rates?

For a more in-depth look at refinancing, check out the HSH.com article “Refinance: Is It Right for You?” You also can see different lenders’ lowest mortgage rates or request mortgage quotes from reputable lenders at this site.

This article is the final installment of a 14-part series that explored the core tenets of Get Rich Slowly.

Here’s the opening paragraph from my forthcoming book, Your Money: The Missing Manual. It’s the sum of everything I’ve learned during my five year journey to get rich slowly:

You don’t want to be rich — you want to be happy. Many people mistakenly believe that the former leads to the latter. While it’s certainly true that money can help you achieve your goals, provide for your future, and make life more enjoyable, merely having money doesn’t guarantee happiness.

Many of us (including me) get wrapped up in the belief that having more money is the key to a better life. But it’s not. The key to a better life is increased happiness. For some people, that does mean more money. But according to the research Tal Ben-Shahar shares in his book Happier, most of us would be better served by:

• Creating rituals around the things we love to do.
• Expressing gratitude for the good things in our lives.
• Setting meaningful goals that reflect our values and interests.
• Playing to our strengths instead of dwelling on weaknesses.
• Simplifying our lives — not just the Stuff, but the time.

We’re more likely to lead happy lives by putting these principles into practice than by getting another raise at work — especially if the increased income would only lead to increased spending. When we focus on monetary goals, we run the risk of becoming trapped on the “hedonic treadmill” (also known as lifestyle inflation), working harder and harder to make more and more money. This does not lead to happiness.

Sometimes money can buy happiness
Wealth and happiness aren’t mutually exclusive, of course. According to financial writer Jonathan Clements, financial stability improves well-being in three ways:

• If you have money, you don’t have to worry about it. By living below your means, you can obtain a degree of financial control even if you aren’t rich. Avoiding debt gives you options.
• Money can give you the freedom to pursue your passions. What is it you want out of life? What gives you a sense of purpose? These are the sorts of things you want to pursue in retirement. Better yet, try to structure your career around something you love to do.
• Money can buy you time with friends and family. In fact, Clements says, true wealth comes from relationships, not from dollars and cents. Social capital is worth more than financial capital.

Money is a tool. As with any tool, a skilled craftsman can use it to build something amazing: a meaningful life filled with family and friends. But if you’re not careful, if you don’t have a plan, the life you construct with your money can be a tenuous thing — even dangerous.

Lessons learned
Studies show that the pursuit of money is less likely to bring personal fulfillment than focusing on self-improvement and, especially, close relationships with others. Here are a handful of lessons I’ve learned during my research into the connection between money and wealth. I didn’t come up with any of these ideas; they’re products of actual research into what makes us happy:

• People who are materialistic tend to be less happy than those who aren’t. If your aim is to have more money and more Stuff, you’ll be less content than others whose goals are built around relationships or mental/spiritual fulfillment. (Because I’m a perma-geek, I’m always reminded of what Princess Leia says to Han Solo in Star Wars: “If money is all that you love, then that’s what you’ll receive.”)
• Oversaving does not lead to happiness. While it’s important to save for the future (and to cope with current emergencies), research shows that oversaving can actually have a negative impact on your quality of life. If you’re meeting your goals for saving, it’s okay to spend some on the things that make you happy.
• Experiences tend to make us happier than material things. We have different reactions to the money we spend on experiences and the money we spend on Stuff: When we spend on experiences, our perceptions are magnified (meaning we feel happier or sadder than when we spend on Stuff), and the feelings tend to linger longer. And since most of our experiences are positive, spending on activities instead of material goods generally makes us happier.
• When we lower our expectations, our happiness increases. High expectations come when we compare ourselves to others or when we’re bombarded by advertising. We come to accept the things we see on TV as “normal”, and because we don’t have these things, we feel inadequate. Our expectations rise, and before long we’re caught up in lifestyle inflation. But if we can consciously manage our expectations — both financial and otherwise — we can increase our sense of well-being.

Really, there’s only one way to ever be satisfied with how much money you have: You must define how much is Enough. True happiness comes when you learn to be content with what you have. If you don’t take the time to figure out what Enough means to you, you’ll always be unhappy with your financial situation.

How much is Enough?
Enough looks different to each of us. It’s not just different amounts of money, but different types of wealth. For me, Enough is having my home paid off and cash set aside to let me buy books and go out to dinner with my wife once in a while. For you, Enough may mean living in a small apartment but owning a boat and having the freedom to sail for months at a time.

To find Enough, you have to set goals. You have to look inside to find your values. It can take months or years to get clear on what makes a meaningful life for you, but after you’ve done this, you can make choices that reflect your priorities.

After all, that’s why you’re doing this. You’re not building wealth just so you can bathe in buckets of cash. You’re building wealth so you don’t have to worry about money, so you can pursue your passions, and so you can spend time with your family and friends.

Remember, my friends: True wealth isn’t about money. True wealth is about relationships, about good health, and about continued self-improvement. True wealth is about happiness. Ultimately, it’s more important to be happy than it is to be rich.

Here’s a bit more on this subject:

• The psychology of happiness: 13 steps to a better life
• Ten steps to greater happiness
• My review of Happier by Tal Ben-Shahar

This is the final installment of a 14-part series that explored my financial philosophy. These are the core tenets of Get Rich Slowly. Other parts include:

• Tenet #1: Money is more about mind than it is about math
• Tenet #2: The road to wealth is paved with goals
• Tenet #3: To build wealth, you must spend less than you earn
• Tenet #4: Pay yourself first
• Tenet #5: Small amounts matter
• Tenet #6: Large amounts matter, too
• Tenet #7: Do what works for you
• Tenet #8: Slow and steady wins the race
• Tenet #9: The perfect is the enemy of the good
• Tenet #10: Failure is okay
• Tenet #11: Financial balance lets you enjoy tomorrow and today
• Tenet #12: Nobody cares more about your money than you do
• Tenet #13: Action beats inaction
• Tenet #14: It’s more important to be happy than to be rich

Thanks, everyone, for indulging me with this. It felt good to set down my philosophy into a semi-coherent series.

This is a guest post from Joe Taylor Jr. Taylor is an internal business consultant for a Fortune 500 company, who also writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

I remember an evening a few years ago, when the company I helped start had to close its doors. I’d sunk my entire savings into building a business that had thrived. As soon as bombs started falling on Baghdad in 2003, however, my largest client cancelled its contract and two other big customers totally shut down. Of course, my creditors didn’t care about the reasons I hadn’t been receiving payments on invoices we’d sent. They just wanted to get paid themselves.

My wife and I ran down the list of changes we’d have to make: downsize to a smaller home, cut the cord on cable television, maybe even cancel my life insurance policy. While we had to cut plenty of budget items to the bone, I kept scraping together a few bucks every week to keep paying that term life policy. After all, I joked at the time, it meant that I was at least worth more dead than alive.

Staying the course through tough times
Those were scary times. I’m in good financial shape now, but the recent economic downturn has many of my friends in the same place I was that night. For most Americans, the cost of maintaining a term life insurance policy amounts to the same price as a meal for two at a casual restaurant, maybe less. And it’s easy to consider dropping life insurance when you’ve been laid off or you’re facing another kind of money crisis. It’s not like things can get any worse, right?

In fact, they can.

Economists from Columbia University and the U.S. Federal Reserve examined death statistics and found that laid-off workers face a higher mortality rate than colleagues who remain steadily employed. Over twenty years following mass layoffs, discharged workers were, in many cases, up to twenty percent more likely to suffer medical or mental problems that led to their deaths.

Why staying current on term life insurance saves money
Of course, if your life insurance is tied to your job, you typically need to establish a new policy. Many financial advisors urge clients to maintain a term life insurance policy in addition to coverage offered as an employment benefit. This way, you can maintain coverage and enjoy consistently low monthly premiums. In addition, you won’t have to subject yourself to new exams when you change jobs.

I’ve been able to supplement my term life coverage with employer-provided insurance over the past few years, secure that my primary policy can care for my loved ones regardless of my employment status.

Getting healthy can help cut life insurance costs
I’d like to say that I kept the same insurance provider throughout the past decade. Instead, I made a switch when I learned more about how term life insurance providers rate risk. If you smoke, if you’re overweight, or if you lead a sedentary lifestyle, you may feel more of a pinch when you pay your monthly premium. I’ve never smoked, but after my wife started dragging me to the gym a few times each week, I found a life insurance provider online who was able to shave ten dollars a month off my payment. It’s a small reward for doing the things I should have been doing all along to take care of myself.

If you’re thinking about canceling your life insurance, what are some other items in your household budget that might make more sense to cut? Are there ways you can kill two birds in one stone, by spending less on unhealthy items and keeping your premiums intact? Tell us about your challenges.

Here’s a holiday video from 1950 showing Christmas celebrations around the world: in the United States, England, Holland, France, Sweden, Switzerland, Korea, Japan, Canada, Mexico.

As the spirit of Christmas unites all humanity, men and women everywhere reaffirm their faith in the brotherhood of man. The News Magazine of the Screen presents, from around the world, the spirit of PEACE ON EARTH, GOOD WILL TOWARD MEN.

Happy Christmas, everybody. Have a great weekend.

This is a guest post from Francine Huff, a freelance journalist and writer at BestReverseMortgage.com and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her web sites Huff Writes and Super Savvy Spender.

Whether through recent news articles or over the water cooler, you’ve probably heard something about reverse mortgages. But if you (or a loved one) is considering this type of loan, don’t base your opinion on hearsay. For such a major financial decision, it’s worth getting the facts about reverse mortgages. This type of mortgage can actually be a valuable option for people in the right circumstances and who understand the terms of the deal.

Reverse mortgages convert home-equity into cash
What is a reverse mortgage? If you own a home and are 62 or older, a reverse mortgage is a way to convert some of your home equity into cash. Rather than make monthly payments to your lender, your lender is making payments to you. The money you borrow through a reverse mortgage is paid back, with interest, when you move out of your home, sell your home, or die.

The older you are and the more valuable your home, the lower the interest rate you can get in a reverse mortgage — meaning you can borrow more money.

Why and how do people use the money borrowed through a reverse mortgage? Cashing out home equity in this way can be helpful if you have a fixed income and need more money to pay for household bills, debt, medical costs, home repairs, or other expenses. The money from a reverse mortgage can be paid out as a lump sum, in regular payments, or as a line of credit.

Unlike with traditional mortgage loans, your credit history does not matter with a reverse mortgage. However, the house must be your primary residence, so vacation homes and investment properties do not qualify.

Effect on taxes and government program eligibility
If you’re concerned that the additional money will boost your income tax liability, don’t be. Money obtained through a reverse mortgage loan is not considered taxable income. You also keep the title to the home and can never be forced to move as long as you pay the property taxes and insurance. If you and your spouse take out a reverse mortgage together, the loan isn’t due until both spouses have moved or died.

If you receive regular Social Security or Medicare payments, they won’t be affected by taking out a reverse mortgage. However, your eligibility for Medicaid payments could be affected. Money received from a reverse loan may be considered an asset and could keep you from getting Medicaid.

For example, if you receive $4,000 from a reverse mortgage and spend it all the same calendar month, you can receive Medicaid, according to the National Reverse Mortgage Lenders Association. If you spend some of it and put the rest in your savings account, that’s where you can run into problems. If your total liquid assets exceed $2,000 ($3,000 for couples) the next month, you wouldn’t be able to receive Medicaid.

Are you a spendthrift?
One of the disadvantages of a reverse mortgage is that getting money this way won’t correct poor spending habits. If you have trouble managing your money, a reverse mortgage won’t solve your financial problems.

For some folks, getting their hands on a large sum of cash may result in poor spending choices that could leave them without enough money for basic living expenses later on. Who hasn’t heard horror stories of retirees blowing reverse mortgage money in record time on expensive vacations, meals, cars, and other frivolous purchases? Anyone who really has a problem with debt and managing money may need to speak with a credit counselor.

Credit counseling differs from reverse mortgage counseling, which is mandatory for most reverse loans. This free or low-cost counseling can be done in person or by phone. The goal of counseling is to get detailed reverse mortgage information to help you decide if using one of these loans is a wise choice. Counseling can help you review other alternatives to getting a reverse loan. Find a HUD-approved counselor to talk through your options. Seniors who use reverse mortgages can reap a lot of benefits, but these loans aren’t for everyone.

Your home appraisal
You may not benefit much from a reverse loan if you don’t have enough home equity. When you apply for a reverse mortgage, your home will be appraised to determine its current market value. The more equity you have in your home, the more money you can potentially receive through a reverse mortgage. After the past year’s market performance, it’s worth noting that no matter what happens with the housing market, the amount owed on a reverse mortgage never exceeds its market value at the time a house is sold.

Just make sure you really want to cash out that home equity. When you own a home free and clear, you can leave it to your heirs without too many restrictions in most cases. But with a reverse mortgage, one of the disadvantages is that if you want your heirs to have the home, they (or your estate) must pay off the loan balance first. They also could choose to sell the home and keep any remaining equity after repaying the lender. If they don’t want the home, they can do nothing and the mortgage lender takes the property.

Reverse mortgage disadvantages: Loan fees
Reverse mortgages usually have a lot of upfront costs, so you may want to consider other alternatives to getting more funds if you plan to move from your home in a few years. Some other ways to improve your cash flow are to redo your budget to reduce expenses, get a home equity loan or no-interest loan from a local government agency or nonprofit, or look for grants for homeowners in your area.

One thing to remember is that the US Department of Housing and Urban Development’s Home Equity Conversion Mortgage (HECM) allows you to use the proceeds from to buy another home as your primary residence. So you can use the money from a reverse mortgage to downsize to a less expensive place.

Get the reverse mortgage facts to help you decide
As more seniors have struggled to make ends meet in recent years, reverse mortgages have grown in popularity. Some consumer advocates and legislators say reverse home loans are heading for another meltdown like subprime mortgage loans. Others believe that these loans have a lot of value and can help seniors live more comfortably in their golden years.

It’s up to you to make the right decision based on your personal financial situation. And don’t let pushy salespeople pressure you into signing up for a reverse mortgage without understanding all the consequences. Talk to a counselor to discuss reverse mortgage facts and whether one makes sense for your needs.

J.D.’s note: I know absolutely nothing about reverse mortgages. In fact, before doing research for my book, I had vaguely negative feelings about them. But lots of financial experts I trust think they’re a good option — in some cases. Do YOU know anyone who’s taken out a reverse mortgage? Are they glad they did? Or do they wish they hadn’t?

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

I must confess to a new habit: I collect discarded ATM receipts. It all started when I walked by the bank in the building next to Motley Fool Intergalactic Headquarters, and found one such receipt blowing in the wind. I was shocked by how little the person had in her/his bank account, and how much she/he paid to get what cash was available.

To see what I mean, check out the stats on seven receipts I’ve recently picked up:

What comes to your mind when you look at those numbers? Here’s what comes to my mind:

• Some people have very small bank accounts. Only one of those accounts is substantial. Of course, this may not be the only bank accounts these people have. But if it is… well, these people are living on the financial edge. I suspect they have other accounts with much bigger balances: their credit card accounts.
• Some people are willing to pay a lot to get their cash. Three of these people paid three bucks. In the case of the last person, that $3 ATM fee was 15% of the withdrawal and 4.5% of the entire bank balance.
• Some people don’t give a hoot about polluting. I don’t dig through the garbage for these receipts; they all have been thrown on the ground. Some people take the time to rip them up and then throw them on the ground (even though there’s a trash slot under the ATM). I have considered the possibility that the receipts I collect aren’t indicative of banking customers in general but a self-selecting sample — specifically, people who have little regard for their community also have little regard for their own personal finances. Just a theory…

What’s your ther-money-stat?
Here’s another theory I have: We each have an internal level of financial stasis that involves having a certain amount of money in the bank, a certain level of debt, and a certain amount of each paycheck going to savings — an internal “ther-money-stat,” if you will. If we somehow find ourselves in a better situation than our regular level of financial comfortability, we turn up the spending. Perhaps it’s due to a raise, or a bonus, or an unexpectedly large tax refund. But as historian C. Northcote Parkinson wrote, “Expenses rise to meet income.”

On the flip side, there’s a level at which we freak out. Our financial condition drops below our internal ther-money-stat, and we swear off restaurants, movies, vacations, and anything but the necessities. (By the way, a difference in these internal levels is one of the biggest sources of conflict between couples.)

If I had just a few hundred dollars (or less) in the bank — as is the case for plenty of people, according to the ATM receipts I pick up — I would immediately cancel the cable and the cell phone, turn down the heat and layer up the sweaters, and likely get a second or third job. I would barely be able to sleep with that little in the bank.

Of course, I don’t know the stories behind these receipts, but my guess is that these folks have a much lower ther-money-stat than I do. The question is, can it be changed? Can someone who is willing to pay $3 to withdraw $20 from a $71.04 bank account turn into someone who would not rest until there’s three to six months’ worth of living expenses in an emergency fund?

I think it’s possible; you GRS readers have told us before what got you to become fiscally fit. But I bet it’s not easy.

Season’s depletings
I suspect that many of us (myself included) tend to get a bit self-righteous when we see evidence of people making bad financial decisions. However, I can’t help — especially at this time of year — to also feel sorry for these low-balance bank customers. There are plenty of people who are experiencing tough times due to no fault of their own. I can even conjure images of parents withdrawing from their measly accounts to buy gifts for their kids. (I’m a sucker for a holiday sob story.)

So whatever the reason for these folks’ modest bank accounts, here’s to hoping that they — and you — have an enjoyable holiday season, and that 2010 brings bigger bank balances to us all.