Give yourself plenty of rope - in case you trip

Interesting situation came up yesterday. My bank wants to refinance my home, which would save me money and be a good thing. However the appraisal came in lower that the original purchase price (not very surprising right now).

So then the question to me was, will you put in extra money to get the loan to value ratio down to 70%. The amount was pretty high, but would save me monthly cash.

So I called my father, who managed to stay in farming during some of the toughest years. I could take the cash out of one business or the stock market. Both would leave me short cash if anything else came up wrong.

My father's analysis, which matched how I have seen him run his own business, was keep the cash available. He said, "if your rope is too short and you trip, you'll hang yourself."

Funny thing happened when I called back the mortgage agent and told him that I would have to pass (and eat the $400 appraisal fee). He said they would apply for an exception, it might cost me an extra $10K on the mortgage but I would make that back up in 10 months of savings. So I get the best of both worlds, safer mortgage and maintaining as much personal cushion as possible.