Mortgage

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Lawn ChairYouth sports are funny. On the sidelines, as parents, in our cheap folding chairs, we’re all pretty much equal.

Sure, there’s some judging going on based on the vehicles we drive up in but, for the most part, even a relatively new Nissan runs around $40k.

A hefty price tag for, well, a less than luxurious ride.

It’s once the Facebook connections start to take hold and the inconsequential birthday invitations start coming in that you get a glimpse that some of these folks are, well, “living the life”.

You know, tennis court in the back yard, kitchen that could easily seat 30 people, and multiple staircases…to their 3rd floor library.

In fact, lately, while it’s hardly true, it still feels like we’re the only ones who lack these things…

A classic “not” keeping up with the Jones’ type of deal.

One kid, whose parents I went to high school with, lives in a $6 million dollar home. I can’t even imagine.

Anyway, while driving around aimlessly last week with the kids killing time until swimming lessons started, I stumbled into a neighborhood of homes that, when I’m not dreaming of living in a 5000 square foot Victorian home from the 1800’s full of secret passages, was full of McMansion style houses that I picture myself in when I’m in my 40’s and raising my kids.

Newsflash… that’s just a year away. Ack!

Yeah, I could live here.So I scoped out a couple of them on local real estate sites to get a glimpse of what the interiors look like and, yep, as expected, they’re all really nice. Duh.

Price tags hover around $650k.

No, not 6 million dollar homes but, really, who needs a full blown movie theatre or bowling lanes in their house? Not me.

Again, I can’t imagine.

A $650k mortagage, excluding taxes and insurance (like my current mortgage) would run around $3200 per month.

Yeah, I can’t swing that.

But… if I were to sell my current house for $200k (maybe a stretch, maybe not) and come out with $130k (subtracting out the outstanding mortgages) and apply that as a downpayment, well, the monthly mortgage payment would then drop to under $2500.

Considering I’ve been paying that amount on a CAR PAYMENT — alongside two mortgage payments — with relative ease, well, now things are becoming a little bit clearer…

Financially, we could totally afford to move to a new home that’s double (or even triple) the size of our current one.

In fact, once we’re done paying daycare bills, gasp, even a $3200 per month mortgage payment would be totally do-able.

Am I really convincing myself that I should/could trade up from my first home (that I paid $141k for) all the way up to a $750k+ home?

Yeah, kinda.

I mean, I wouldn’t need to build that 3-car garage anymore cause, well, the new house would already have a 4-car one.

And even though we already have enough room in our house for each kid to have their own room…if we moved, they could each have their own bathroom (and staircase too)!

All kidding aside, though…

It’s the brief moments of weakness like this that I feel I do need to “keep up”.

Thankfully, reality always sets in (along with my own incredibly high-end personal “vision” of myself) pretty quickly, and I’m happy with where I am.

I know I could have a $750k house if I wanted to…

Perhaps it’s not the wisest financial move (not investing in real estate in a upward fashion) but I can’t say I’ve had a sleepless night over money for over a decade now.

It’s pretty comforting knowing that I “could” pay off my mortgage pretty much anytime I’d like.

Moreso than the comfort a $750k house could give me.

Most of the time, anyway!

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During my mega debt repayment days, when I was $30k in the hole and totally clueless, I came up with the idea of paying down my debts on a weekly basis rather than a monthly basis.

Now I know Dave Ramsey, Clark Howard, Suze Orman and countless others often mention that making additional payments is the fastest way to financial freedom and they’re right.

Duh? It ain’t rocket science.

Usually mentioned are bi-monthly payments. By bi-monthly, I’m referring to the “twice per month” definition rather than the “every other month” definition.

I started there, basically taking my minimum monthly payment due, divided by two and set it up to be paid on the 1st and 15th of each month.

Seeing zero progress, mostly cause I was still essentially only making minimum payments, I started paying the minimum payment twice per month. This made it so that I was essentially making a double payment each month which, clearly, led to success.

The downside is that it hit my lifestyle pretty hard, you know, writing a multiple $400+ checks every other week. That would not do. I mean, really, who likes paying big bills?

So to lessen the impact, I cut the payments in half — kinda like the original variation of the bi-monthly plan — but this time, I paid my credit card bills weekly.

Hundred bucks here, hundred bucks there is totally do-able.

Sure, it still sucks but when you see real progress, I mean, really fast progress occurring every 7 days, well, it doesn’t suck so much because the end of the tunnel quickly comes into focus.

Using this method, if memory serves me right, I think I paid down $30k balances in just over a year. Twice. Look it up — it’s documented on here somewhere.

Point is, paying credit card bills to the tune of $2500 per month (on top of the mortgage, utility bills, car payments, whatever…) sounds like a total impossibility but I was essentially able to just that with weekly $200 payments to 3 different credit cards.

Hmmmm… $600 per week is still kinda steep… I’m proud of myself for being able to manage that but it doesn’t have to be that much if you can’t do it.

Trust me, these days with two kids in daycare, I’d be in a bind with one $600 payment per month, let alone per week!

But that doesn’t mean I’ve abandoned the idea of weekly payments. All along, I’ve been transfering money to my savings account on a weekly basis. That said, I’ve never been as successful saving money as I have been paying down debt.

So, relating to yesterday’s posting about finally getting back to where I originally was on the mortage (prior to refinancing), it’s time to get back on the same path I was previously on.

At my current pace, just making minimum payments each month, I’ll have the house paid for in 326 months. That’s over 27 years from now. That will not do.

Tossing just $25 per week extra towards the mortgage knocks the term down to 230 months. That’s just over 19 years from now and, seriously, $25 a week won’t be missed… And with a reward of 8 years without a mortgage payment? Well, hello!

Jumping to $50 per week means I’ll be done in under 15 years.

Eh, how about $100 extra per week… Well, that gets me down to 10 and a half years until my mortage is paid in full.

I’m not even looking at how much interest I’ll save myself from paying — that’d just sweeten the deal.

Now, can I do $100 per week for the next decade?

Probably.

Can I imagine making an extra monthly mortgage payment of $433.00 each month?

I’d prefer not to… but as I’m sure you’ve guessed, they’re essentially the exact same.

Brains work in a weird way — $433 sounds and feels like a lot. Out of range, even… $100, though, doesn’t have the same sting…

I think I could part with $100 each week.

Just something to think about…

Owning the house free and clear before the kids are even out of junior high….

That’s a very pleasant thought…

For now, though, I’m starting with $25 per week (first payment was this morning) until we figure out how (and for how long) the new car purchase is going to re-arrange our finances…

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So, remember when everyone was looking to refinance their mortgage every time the rate dropped and people were going through the process, like, once per year just to get a better rate as if the interest rate were the only think that mattered?

One of the “warnings” was not to bother unless you’d be in the house for more than 5 years since that’s how long it would take to make it “worth it”. I suppose that still holds true today.

While I was aware of the “historic” low rates, I wasn’t really planning to take advantage but, as fate would have it, I too refinanced back in 2010.

I didn’t rate shop. I didn’t even payment shop.

My sole goal was to get out from under the “required” but totally unnecessary PMI payments that I’d been making to CountryWide. You can read up on that, at-the-time, seemingly endless headache here.

In the end, as a result of the refinance, I was able to finally rid myself of Private Mortgage Insurance (PMI) and, as a bonus, even got my monthly mortgage bill under $500. Pretty sweet, huh?

There was a discrete downside, though…

Closing costs.

I don’t recall if I paid any and I’m not certain I could have afforded to at the time.

Anyway, like they often do — and what the 5 year warning is really about — they roped the closing costs in with the new loan.

Going in to the process, my mortgage balance was $92k-something and coming out with the new lender, the balance was $97k.

As my balance today is $92.5k, I’m just now getting back to where I already was 3 years ago.

Progress?

So while, in the grand scheme of things, my re-fi resulted in 36 mortgage payments that didn’t move my balance one bit, I still don’t regret it one bit.

The disappearance of PMI and an incredibly low mortgage payment outweigh 3 years of “catch-up” payments. No contest.

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At the end of this month, I’ll have been in my house for 10 years.

When I bought the place (an as-is special) in 2002 for $141k, I’m not sure I’d thought far enough into the future to imagine where I am now but I’m going to take a peek now.

One third of the way into my original mortgage term, I still owe $93,361.64.

If you do the math, that means that I’ve also paid down almost exactly one third of my loan.

That sounds about right until you look at an amortization schedule….

A typical 30 year mortgage takes around 15 years to be paid down to the level I am now.

Basically, though I’ve taken the last couple of years off (by not adding sizable additional payments), I’m still 5 years ahead of schedule.

All those extra payments years ago may have been worth it after all!

Day One

And, on top of it all, somehow I could afford to make it look nothing like it once did…

Gone is the carpet, the latch closure storm door, the wood paneling, the drop ceiling, and even the deer head

Okay, the deer is in the attic, but you get the idea…

The address might be the same but it’s a different house.

Boehner must live in the Sunniest part of OhioDuring President Obama‘s SOTU address he touched on something about making it easier for people to refinance their mortgages at the current bargain basement prices and today I’ve seen two or three articles about it.

I haven’t researched it (at all) but I’m assuming that this is some kind of after-the-fact reactionary federal government proposed “solution” to the housing crisis of the past few years, you know, an attempt to quell the number of foreclosures that dot the landscape.

But that’s where I lose the connection.

Refinancing at a lower rate (at best, 3 or 4 percent lower which, technically speaking, is nothing) doesn’t solve the foreclosure problem.

For instance, my newest neighbor moved in back in 2006 and paid around $275k for their home.

In general terms, it’s pretty much the same house as mine except that I only paid $141k for mine in 2002.

Following the housing “slump” our homes are currently only worth around $200k.

It’s not rocket science to come to the conclusion that my neighbors are underwater (they owe more than the house is worth) and are likely prime candidates to “walk away”.

The re-finance “solution” won’t ease their pain.

It’s not the interest rate on their mortgage to blame — it’s that they paid too much for their house.

So what’s the point of this government proposal again?

To make it easier for people who can’t afford homes in the first place…again?

It’s too soon for history to repeat itself.

This blog apparently is repeating itself…

Back in 2008 I asked, Are Home Values Important to the Economy?. That post was along the exact same line.

It was a better read, though…

I’ve lost my touch.

No, really…

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Full Disclosure: I freely admit that I benefited from the easy and available money back when I purchased my home with a tiny tiny tiny down payment.

Yes, mortgages were easy to come by and I’m fortunate enough to have rolled the dice, made a “wise” investment with the money loaned to me, and come out the other side a winner with a low rate, a low monthly payment, and a house worth more than double what I still owe.

So it’s now been a year since we re-financed our mortgage.

On one hand, that move gave us great financial, well, not freedom, really, but…flexibilty, I guess.

I mean, suddenly having a sub $500 mortgage payment when you’ve grown accustomed to a $1500 mortgage payment for years on end should be lifestyle altering…

And it was…

But it feels like we’ve gone the wrong direction.

Back then, we were debt free and living pretty comfortably — a tiny mortgage payment was really just icing on the cake.

The good kind of icing where you can’t feel the sugar crystals in your teeth. I recommend Betty Crocker.

One year later, though, we’re $28k deep in credit card debt and our mortage balance $4k higher than it was.

That’s not progress…

Déjà vu?

Money’s not tight, like, “Oh crap, how are we going to pay the water bill,” but it’s not growing off of trees like it probably should be.

Still, though, while the re-fi may have sparked the tailspin of the last year, I’m still convinced that it was the right move.

I just lost my way shortly thereafter…

I stopped paying down the mortgage like a maniac.

That was a good move, actually, but it also kinda gave me that stuck-in-the-mud type of feeling. The balance isn’t falling — and how could it with $500 monthly payments?

Financially speaking, it’s unwise to overpay it. Mentally, though, I really miss seeing the balance drop each month. For a few months there, I was knocking it down over a thousand bucks per month and it felt great.

Really, though, the big mover and shaker of the past year was the major renovation that we had done last year.

I don’t regret it — it HAD to be done and it’s made our house a safer and more comfortable place to live.

At the same time, I really thought we’d have it paid for in full by now.

And we should.

I just didn’t stick to my re-payment schedule.

And I kept spending. An expensive trip last summer and the new car purchase just a few months ago were crippling, just crippling, and we haven’t recovered.

Making matters worse, in another month or so, Henrik will be joining Duncan in daycare.

Wanna talk about a budget buster?

More on that later…

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You know, though I’ve only made one mortgage payment in the past 3 months while also managing to cut the monthly payment by 60% (through the re-fi), the more I think about it, the more I start to see it as a lateral move.

I mean, this should have made a HUGE impact financially but the thing is, it hasn’t.

At least not yet.

It’s not my own doing — it all goes back to that pay cut that I took. It essentially cancelled everything out.

Sure, I’m paying less but I’m also making less. It didn’t get me anywhere.

On the other hand, I guess it’s been business as usual around here as I haven’t really felt the effects of the paycut — when most of my co-workers probably have.

I dunno, still seems awfully dark and cloudy.

Probably because I thought it’d be sunnier…you know, having a sub-$500 per month mortgage payment…

I guess it just hasn’t been as great as I’d expected it to be…

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Late this week we recieved the results of the appraisal done last week for our potential mortgage re-finance.

If you haven’t been keeping up with my nonsensical postings over the past few weeks, well, here’s a quick and dirty recap:

  • At the end of April we thought we’d take a shot at refinancing our mortgage to eliminate paying PMI, lower the interest rate, and, most importantly, lower our minimum monthly payment considerably. [link]
  • Through the re-fi process, we found out just how awesome our credit scores are. [link]
  • When we found out that an apprasial was required to move forward and schedule a closing date, we freaked out because a decent chunck of the interior of our house could *and* should be considered a total s-hole. Rather than do a quick and dirty (but still costly) clean-up, we called in an extreme makeover type of contractor. [link]
  • The quote for the renovation came just over $33k — we cleared out all of our furniture and green lighted the project. [link]
  • Just wanting the potential new lender to leave us alone, and because we don’t *really* need to refinance anyway, we reluctantly scheduled the appraisal even with 1/3 of our home completely empty and in various stages of disrepair and demolition. [link]

Okay, so now you’re up to speed.

So, anyway, the appraisal came in and it’s not as high as I’d expected it to be.

I mean, I could argue about the area homes that they compared our home to until I’m blue in the face — I don’t know how a smaller cape-style home on a 4-lane state highway that faces a HUGE auto dealship can be considered comparable to my huge (in comparison) three story double gabled-ell on a tree-lined residential street but, then again, I’m not an appraiser.

Eitherway, the appraisal came in high enough so that we’ve got nothing to worry about.

We scheduled the closing for next Thursday so, unless anything unforeseen comes up (like if they pull our financials again and see a sudden $17k credit card balance), I won’t need to pay my mortgage at all in June and starting in July, I’ll only need to pay $500 per month.

That’s 60% less than what my current mortgage payment is!

So in one fell swoop, I’m on the cusp of eliminating PMI, paying off my mortgage faster than planned, and paying for this remodel faster than expected too.

I can’t wait for Thursday to be in my rear view mirror so that I know that it’s all official.

Then I’ll have my cake and eat it too…

No, really, I can’t believe how things are falling into place so quickly — it’ll be a huge load off of my shoulders when it’s all done.

Can You Dig It?

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