Debt Con Goes DEFCON

By
Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

Debt Con Goes DEFCON

 

Back in the Cold War era, the Joint Chiefs of Staff implemented a new system to indicate military readiness and they called it the 'defense readiness condition,' or DEFCON.  They gave it five levels, "1" being imminent nuclear war.  So let's use this model --- along with some crafty adaptations --- to demonstrate how debt consolidation refinances can also reach critical levels as a consumer manages his finances along with the value of the his home.  It's important to remember that managing your mortgage and other debts always requires vigilance, just like military preparedness.  With a nod to our friends in command, let's examine the steps on our own DEBTCON scale:

 

  • DEBTCON 5:  In "peacetime" our borrower can go about his merry way, carry some manageable consumer debt, keep his existing mortgage and only consider a refinance when interest rates drop and the market merits.  
  • DEBTCON 4:  Here, our borrower might work to get ahead of a pending change.  We see this frequently.  Perhaps, like at the time of this writing, a borrower is 3 years into a 7/1 ARM but sees rates rising and wants to fix something in before it's too late.  This borrower doesn't have to act, but by doing so, he assures that risks that may be far from materializing are contained.
  • DEBTCON 3:  This consumer recognizes that refinancing and consolidating other debts, even if at a rate that is the same or slightly higher than he currently holds, is a better strategy than continuing to pay higher consumer rates (credit cards, student loans, auto payments, etc.).  Successful implementation of the strategy saves money each month, may impart tax benefit to the remaining debt and, with responsible spending going forward, allow all of the obligations to be extinguished far sooner.
  • DEBTCON 2:  Sleep is being lost, minimum payments are being made on credit cards but there is still a sliver of equity in the home to enable a cash-out refinance to work.  Consolidating the credit card and consumer debt is, at this point, necessary to make the household budget work --- let alone the fact that the high balance-to-limit ratio is eroding the FICO score with each billing cycle.  Borrowers at this level might be forced to accept something other than a fixed rate mortgage and they may have terms that are less than the best but at DEBTCON 2, 'wants' become secondary to 'needs' and a refinance is a lifeline.
  • DEBTCON 1:  There may no longer be sufficient equity in the home to consolidate or the borrower may not qualify.  The borrower faces tough, tough choices and his credit score might get nuked in the process.  A refinance funded at this level, if still possible at all, goes before the grace of God.

 

In the mortgage business, we prefer to see our clients operate between levels five and three.  But likewise, we realize that, to quote John Lennon, "life is what happens while you're busy making plans for other things," and that financial fortunes can change and shift, sometimes beyond our control.  When they do, understanding how a cash out refinance can be used to consolidate your other debts is a great piece of knowledge to have and use.  We're here to help you make sense of the pros, cons, math and logic of any refi so call on us before you scramble the jets.

 

Red alert, 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 Fax: 415-366-1590
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood ChicagoIL 60613 - (866) 934-7283

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Tags:
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Rainer
245,387
J.R. Schloemer, CRS
Kentucky Select Properties - Louisville, KY

I love this Rob Spinosa! When I bought my place in Reston, VA the neighbors told us the sellers bought something new in their child's name because he had the credit to buy and had plenty of time to rebuild his credit...needless to say, we bought our place from the bank after they lost it.

Oct 05, 2018 07:30 AM #1
Ambassador
2,914,418
Anna Banana Kruchten CRB, CRS
Phoenix Property Shoppe - Phoenix, AZ
602-380-4886

Rob this is a great way to think of financial 'readiness' or lack there of. Many, many folks were clearly in the 1 & 2 in the down market. Thankfully most have recovered and going about their lives with one BIG huge difference - no more consumer debt. I am seeing it more and more with our clients. They don't ever want to be in that terrible position ever again.

Oct 05, 2018 10:31 AM #2
Rainmaker
197,781
John Henry, Florida Architect
John Henry Masterworks Design International, Inc. - Orlando, FL
Residential Architect, Luxury Custom Home Design

Very nice analogy Rob.  And I love the Lennon quote and Kennedy graphic.  Good one.

Oct 05, 2018 02:02 PM #3
Rainmaker
2,487,147
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I always enjoyed using the defcon for examples. Thank you

Oct 05, 2018 03:02 PM #4
Rainmaker
3,860,464
Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good afternoon Rob Spinosa,

So glad to see this post featured! What a great analogy and your Lennon quote is one of my favorites!

Oct 05, 2018 03:03 PM #5
Rainmaker
458,678
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Great analogy Rob! I have been in all of them at one time or another! Five beats the hell out of one. I am happy to be in five now, and plan to stay there.

 

Oct 06, 2018 06:03 AM #7
Ambassador
1,908,605
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

What a great post. Feel heartbroken for those who operate with financial stress - what an awful feeling. Fortunately, haven't spent too much time with money worries - especially as a mature adult ( did I say that?). :) Good analogy and visual. 

Oct 06, 2018 06:45 AM #8
Rainmaker
814,219
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

And the award for pun that made me chuckle goes to you today sir.  Debtcon is a funny way to measure the varying levels of financial security.  

Oct 19, 2018 12:58 PM #10
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Rainmaker
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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