Re-focusing the Payment Plan… Again.

The more I think about it, the more I want to focus on paying down the mortgage.

When I paid off the last of my credit card debt, the house just happened to become the top priority. Not for any real reason other than the fact that I already had an automatic payment plan in place. With the extra money around, I just increased the size of my payments.

After around a month, though, I realized that it wasn’t exactly the wisest path to take. I switched things up and started paying down my auto loan instead. I also increased my savings rate.

But now, I’m starting to lean back towards the mortgage again…

Yes, all of this flip-flopping in just 2 months time. I should run for office.

I haven’t put anything into place just yet, but while going through my records, I noticed that my mortgage holder (CountryWide) does their escrow analysis on my account each year somewhere between October and November. For the past 4 years, anyway, it’s been one of those two months.

Now, my whole point of paying down the mortgage quickly is to eliminate the monthly PMI that I’m paying out of that escrow account.

Private Mortgage Insurance (PMI) - PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Eliminating the PMI from my mortgage bill would essentially ensure that an additional $85.15 would go towards principle each month. (Technically, my minimum mortgage payment would go down after the analysis, but I’d continue to send in the same amount on my own — resulting in the $85.15 per month increase.)

That sounds like a good thing, right?

Well, considering that my regular payment applies less than $300 towards principle each month, an additional $85.15 is like increasing my payment by over 25% — and that’s without sending them an additional dime. That makes it very attractive.

As of today, I have $1901 more to knock off the principle before I can safely request that they remove the PMI from the calculation.

To be safe, I think I should press to reach that goal by September, at the latest, to ensure that I get there before they kick off their analysis procedure.

(I’m aware that I can request that PMI be removed any time after I reach the 20% level, but the escrow analysis locks in my monthly payment for an entire year. If I don’t make it by the upcoming analysis, what was going towards the PMI will just sit in the escrow account and result in an escrow overage. In that case, they’ll send me a check of the difference in November of 2009 after the next analysis — not exactly ideal which is why I’m trying to avoid the scenario all together.)

So, with most of my income for June likely being sucked up by our upcoming vacation, I’m thinking that, to be safe, I’ll have to send around $2000 extra towards the principle spread accross July, August, and the first few weeks of September.

That’s a definite possibility if I scale back the current plan of $1000 towards the car and $1000 towards savings each month.

Actually, if I were feeling really daring, I’d just take the $2000 I have in savings right now and send it right to Countrywide and call it a day (or year?)… Nah, not feeling it…

Posted on May 28th, 2008 at 4:49 am by Brainy Smurf
Finance, Mortgage, 2008 Goals, Savings, Mistakes, PMI - Mortgage Insurance | 7 Comments »

Picking Up the (Payment) Pace

We’re well into the month of May now, and after my April in the clouds financially, let’s see if I’m on track again…

I ended up going back to my tried and true weekly payment system. I’d never done it with the auto loan before so I tested it out with a couple of e-payments initiated through my checking account last month. Success.

To meet my original goals for 2008, it basically came down the fact that I had to set aside $2000 per month in order to meet them all by the end of December.

I’m sticking to that plan, and though it seems as if I’m far ahead of schedule, having wiped out the credit card debt, I’m actually not far ahead at all. In truth, I’m actually behind.

There are almost 8 months left in the year and the total cost of my goals is still a little over $16k. It’s going to be tight.

The current strategy is to split the $2000/month right down the middle with $1000 going towards the auto loan and $1000 towards savings in the ING Direct account. Any extra I’m comfortable parting with will go towards the mortgage.

So, I’ve completely automated the auto loan side of things. Each Wednesday, I have $150 being transferred from the checking account to Toyota. In addition, I increased the regular $289 that Toyota pulls from my checking account on the 15th of each month to $400. Together, my monthly payment is now $1000.

At this rate, the auto loan will be eliminated sometime in the Fall. Not exactly as soon as I’d hoped, but it’s a sure thing at this point and I like that aspect.

For the other $1000, I’ve got $75 being transferred over to ING each week on Tuesdays.

True, this only adds up to $300 worth of automatic transfers each month but I’m transferring in the remaining $700 on a manual schedule based on when payments from my side business come in.

Of late though, the side business hasn’t brought in nearly $700 so the remainder is coming from my regular paycheck after the mortgage and all of the bills have been paid.

So far this month, if I include the $75 transfers already scheduled, I’ve accounted for $800 — partly in thanks to the economic stimulus check. Making up the remaining $200 from the paycheck I’ll receive on the 22nd shouldn’t be an issue.

That will put me right on track — and I should also have some left over to attack the mortgage principle as well (to eliminate PMI).

Hopefully, a month from now, I *really* will be ahead…

Posted on May 12th, 2008 at 12:50 pm by Brainy Smurf
Finance, Mortgage, 2008 Goals, Savings | No Comments »

Lost My Way & The Power of a Plan

I’m discombobulated. I had a plan that I stuck to…

And it worked!

Just a few weeks ago I paid off all of my credit card debt, $28k worth, on that plan.

Then, somehow, I ended up with dollar signs in my eyes.

I started sending even more towards my mortgage principle with the prospects of paying off my mortgage in April of 2014. I said I’d wait until May to get this started, but I started already to get a jump on things…

Then I started sending more towards savings seeing my $10k goal this year as *finally* possible.

I even thought up a way to send more towards my auto loan to finish it off too – even set-up a recurring e-payment just this week to get that one moving too.

All of these sound like good financial moves.

But I spread myself too thin. Way too thin.

In the now distant past, I had 5 credit cards with roughly $5k on each one. I was paying them all down aggressively — for a few years. Yes, the balances were falling, eventually I had them all down to around $4k each.

Progress? Yes, but it still felt like I was spinning my wheels.

Balances weren’t really falling. Finance charges weren’t falling. The balance in my checking account was the only real thing falling at a decent clip.

But once I set out targeting one thing at a time, I was knocking stuff out in a matter of months.

When I started with a real plan back in October, I still had three of those original credit cards. Coincidently, all three had a balance hovering around $5k.

With a real plan in place, the first card was wiped out by the end of November. The second was gone in January. And the third and final balance was gone a couple days before the end of March. One, two, three…

Now it’s April.

Today was my first paycheck since becoming credit card debt free. My auto loan balance sits at roughly $6670.

Eh, what’s that, like 3 months until it’s paid off?

Well, that should be the case…if I’d stuck to that original plan.

I hinted at it earlier this week, but I’ve come to realize that my current priorities are definitely backwards. I started attacking the mortgage ahead of the auto loan and that was the wrong course of action.

In an attempt to compensate, I overstretched myself.

So from here on out, again starting in May (for real this time) so I can catch my footing, the auto loan comes first, then the mortgage (until PMI is eliminated), and then savings.

With the summer season coming, and lower utility bills as a result, the combined monthly budget for these goals will remain $2000.

Best of all, this strategy still makes achieving all of the 2008 goals possible by year’s end.

Posted on April 10th, 2008 at 10:17 am by Brainy Smurf
Finance, Motivation, 2008 Goals | 5 Comments »

Goal Priorities Backwards?

I have 3 financial goals remaining for 2008, and right now I’m the furthest along in my quest to eliminate Private Mortgage Insurance (PMI) from the mortgage.

With momentum on my side, I’m eager to finish this one off, but is it the wisest move?

Let’s see…

The other two remaining goals are paying off the auto loan and piling up $10k in savings. Comparing the interest rates of all three, the goal of coming up with $10k in savings comes dead last:

Goal	   Rate
------------------
PMI	   6.735%
Auto	   5.350%
Savings    2.960%

Add in that I only currently have $500 in savings, earning me less than $2 per month, well, that must make it the third priority. It’s not doing anything for me at this point.

To eliminate PMI, as of this morning, I need to take another $3147 off of the total balance of my mortgage.

By accomplishing this, my monthly mortgage bill will not change in the short term, but instead of $85.15 being taken from escrow each month, it will remain, well, in escrow.

When my mortgage company reviews my payment again, usually towards the end of the year, I might see my monthly payment fall around $60. (Not the full $85 due to tax increases and higher insurance premiums which are also paid from the escrow account.)

The auto loan currently has a balance of $6668 — double the amount I need on the mortgage.

Though I’ve been overpaying it since the start, it’s minimum payment each month is $289. By eliminating this debt, the result will be $289 that I can send elsewhere each month — but it will take me twice as long to get there (because the auto loan balance is twice as large as the number I need to hit on the mortgage).

Hmm…

In the long run, it’s obvious to me that paying down the mortgage makes the most financial sense. It will undoubtedly save me tens of thousands in the end — especially if I keep up with the additional payments.

But if the real goal is to have more money in my pocket at the end of the day (and by the end of this year), then the auto loan goal should take precedence as it will allow me to have more money in pocket to fund the savings (and even the mortgage) goal.

I’ve got a couple decisions to make as I’ve already gotten going with the mortgage being priority number one…

And that was probably the wrong move in the short run…

Posted on April 7th, 2008 at 9:41 am by Brainy Smurf
Finance, Mortgage, 2008 Goals, Savings, PMI - Mortgage Insurance | 3 Comments »

Credit Cards Paid Off; Up next…Mortgage & Auto Loan

By my calculations and over the trend of the past few months where my income has dropped, but stabilized, and after all of the monthly bills are paid, I should now find myself with roughly an additional $1500, on average, in my checking account each month for “daily life” expenses.

Prior to this month, 100% of that (and then some) went towards debt repayment.

I still have debts to repay, mortgage and auto loan, but the credit card debt is gone.

I’ve found some time to run some numbers and weigh a few different options to see what the best route to take with the “extra” $1500 would be and I think I’ve settled on one.

For all of my examples, I’m going to assume that each month has 4 weeks — it’s just easier to figure out that way.

At the start of April, I already chipped into the original $1500 dollars when I set up a weekly $75 auto-transfer into my ING account. I’m not planning on altering that right now.

$1500 - ($75 x 4 weeks) = $1200

This is where the decisions need to be made. The interest rate on my auto loan is 5.35% and I get hit for around $30 in finance charges each month. The interest rate on my mortgage is 6.735% and I get hit for around $650 each month.

Dave Ramsey would say I should attack the auto loan because it’s the smallest balance and not the mortgage. Clark Howard would probably say the same thing, though he may make note of the fact that the auto loan has the smaller interest rate.

But I’m considering going the more logical route. Yeah, the rate on the mortgage is higher, but that’s not the main reason. The Private Mortgage Insurance (PMI) I’m continuing to pay is the reason.

PMI is extra insurance that the mortgage companies require from homebuyers who obtain loans that are more than 80 percent of their new home’s value. Basically, if your down payment was less than 20 percent, you’re going to have to pay PMI until you reach that 20 percent mark.

PMI is costing me $85.15 each month. That’s over $1000 each year. I’ve paid my mortgage 66 times so far. That means I’ve paid PMI 66 times and that adds up to $5619.90.

That could have, and should have, gone towards principle. With it, I’d have hit the 20% mark long ago. In the first few years of a 30-year loan, an additional $5k thrown towards the principle would have made a HUGE difference!

Basically, PMI hurts a lot more than the monthly $85.15 let’s on.

Eliminating PMI (on top of paying down the higher rate first) would be the most beneficial route, financially, for me so that’s the route I’m going to focus on.

For the remainder of April, I’m just going to let the dust settle, just pay the mortgage and auto loan like I have been for months, and build up a bit of a cash cushion in my checking account.

This new strategy will commence in May.

I’m going to double the weekly principle payment on the mortgage, from $125/week up to $250/week.

$1200 - ($125 x 4 weeks) = $700

This will allow me to eliminate PMI (and, in turn, subtract an additional $85.15 from the principle each month) by September 2008.

It will also put me on pace to pay off the mortgage in February of 2014, though that isn’t the real goal. I’m thinking more short term just to eliminate the PMI at which point I’ll weigh my options again.

For now, this will leave me with $700 worth of “spending” money each month. I’m thinking I can throw half of that towards the auto loan with each monthly payment.

$700 - $350 = $350

This would put me on pace to have the auto loan paid off in January of 2009. Based on my goals for 2008, that’s not good enough, so any additional money that comes my way will be tossed this direction as well.

In the end, this plan will continue to pay down my debts at a hectic pace, but still allow me to have $350 worth of spending money each month — and that’s $350 more than I have in my pocket right now.

Crazy what eliminating a little credit card debt can get ya…

Posted on April 2nd, 2008 at 6:42 am by Brainy Smurf
Finance, Mortgage, 2008 Goals, Savings, PMI - Mortgage Insurance | No Comments »

$28k+ Credit Card Debt Eliminated

Well, today is the day I’ve been waiting quite some time for.

I just sent a $508.13 payment to Chase and effectively eliminated the very last of my credit card debt!

I received my first credit card, the first one that wasn’t attached to my parents’ account, back in the summer of 1997. The very first thing I purchased with it was a computer from Dell.

That $4k computer served me pretty well, allowed me to start my own company, and held it’s own until 2001. In fact, I’m still using the monitor from that computer purchased back in 1997. I’m pretty proud that my first purchase wasn’t one I regret.

But the rest of the purchases I made on that credit card, and the numerous others I’ve used since, haven’t all been such profitable or wise decisions.

In 2000, I took a personal vacation that cost $7k, financed entirely on a Visa card. Can you believe that?

The crazy part, while I have fond memories of it now, at the time I didn’t really enjoy it all that much. To date, it stands out as the biggest and most frivolous 10 day spending-spree of my life.

Since I purchased my house, just 6 years ago, I’ve bought a new furnace, a new washer, a new dryer, I’m on my third (!?) refrigerator, a new roof, new siding, new doors, lots of new furniture and I charged every single one of them.

I’ve also charged well in excess of $50k on game used hockey jerseys over the years.

Thankfully, they tend to hold their value and often increase in value. It’s tough to call that a stupid expenditure when I really enjoy it and the option is always there to sell them, but at the same time, the amount of money I’ve thrown towards it over the years is staggering — especially when I was casually using a credit card to finance it because I really couldn’t afford it.

One of the most intelligent things I’ve done using credit cards was financing last year’s home improvements by spreading it out across multiple cards and taking advantage of promo offers.

In the end, I believe we financed the entire project just above 4%. The previous year when we went the more traditional route, taking out a home improvement loan to finance the roofing project, the rate was a ridiculous 15.5%.

As a result, in the future, credit cards will be my financing method of choice when an expense comes along that I can’t afford. That is, if they still offer the nice promo rates in this “new” economy.

If you click on the chart above, as recently as June of 2007 (less than a year ago!), my total credit card debt was near $20k.

Today, it’s 100% gone.

The hockey jerseys are paid for. The vinyl siding is paid for. The roof is paid for. The furnace is paid for. The computers are paid for. The camera equipment is paid for. The BMW is paid for. Even the $7k vacation nearly a decade ago is paid for…

It feels good. Even had a little extra spring in my step as I walked into work this morning.

All that’s left now is the one remaining auto loan and that shouldn’t be there for long…

Posted on March 27th, 2008 at 6:37 am by Brainy Smurf
Finance, Credit Card, Success, 2008 Goals | 21 Comments »

Goal on the Verge of Being Crossed Off

Having just submitted payment for my auto insurance this morning (via an e-payment), all of the bills are now paid for the month of March.

Nothing due to come in until the second week of April.

Best of all, I only have $500 left in credit card debt and payday is this Thursday.

Wow.

Looks like I’ll be crossing off this goal for 2008 by the end of the week:

Eliminate all credit card debt by the end of June 2008. Current credit card debt is $10318. I’m aiming to achieve this goal slightly ahead of schedule, by about a month, according to the snowball plan I started in November.

The auto loan is in my sights now…

Posted on March 25th, 2008 at 6:15 am by Brainy Smurf
Finance, Success, 2008 Goals | 1 Comment »

The “In the Black” Plan

I’ve started putting together a few ideas for when the time comes that I’m finally in the black (excluding the mortgage).

My first idea was sparked by a recent comment that Dedicated made on my posting about my rapidly approaching dilemma of uncertainty.

After running the numbers this morning, over the past 36 months, I’ve been paying down my credit cards at an average rate of $2441.66 each month, or in weekly terms, around $563 per week.

With that monthly expense eliminated 100%, I should, in theory, be able to reach my goal of $10k in savings by applying that former payment towards savings in a little over 4 months. That is astounding to me.

More realistically though, with my income down somewhat after dropping numerous clients on my side business, I think a slightly smaller goal of $400/week to ING is within reason.

This too may be difficult as I’m not taking into account the additional money I’m paying towards the mortgage on a weekly basis, but I’ll give it a shot and see where it leads me.

At a rate of $400/week and not including any interest earned, $10k is just 25 weeks away or less than 6 months.

That sounds like a plan for now, but first I’m going to concentrate on paying off the auto loan…

The 2008 goals all seem to be falling into place nicely — especially considering we’re just beginning our 13th week of the year.

Posted on March 24th, 2008 at 6:44 am by Brainy Smurf
Finance, 2008 Goals | 1 Comment »