Mortgage

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Pay off the house?Well, we’re six months into the year now and I’m really starting to regret not setting some concrete financial goals for 2009.

At the onset, I really only had two goals for this year.

  1. Find a contractor to gut and remodel the entire first floor of my house. New kitchen, new bathroom, new floors, new walls, and new ceilings throughout.
    Preferably, I’d like to have the project nearing completion by May 2009.

  2. Pay for all of the work done by the end of the year. Realistically, we’re going to have to find financing for a great deal of the work and, again, I’ll probably use my credit cards for most of it.

Well, my second goal can’t happen without the first actually happening. And we’re beyond May 2009 and we’ve made zero progress on that. Hmph.

It’s not that I’m stuck in the mud or anything, I’m just not aiming towards anything either. There isn’t any excitement to be found on my spreadsheets of late… (How nerdy does that sound?)

Of late, I’ve fallen back on an old habit, debt repayment, to try and salvage the year. My only remaining debt is the mortgage so I’m attacking it like I did my old credit card debts.

See, while I’d love to have the first floor of my house remodelled, I dunno, for some reason it doesn’t excite me the way that not having a mortgage payment does — and when the time comes that I don’t have a mortgage payment, well, that’ll free up a lot of money for all of the remodelling I could possibly dream of.

That’s how I’m looking at it now anyway… (Apparently, I was thinking this way back in January too.)

So how soon can I get there?

I put together a chart this morning detailing when my mortgage will be paid off and how much of an extra monthly payment I’d need to make to get it there.

I went in increments of $250 all the way up to $2500. Yeah, $2500 per month extra. That’s crazy buy when I was at the height of my credit card repayment, I was sending VISA and MasterCard just shy of $2500 each month.

I could afford it then so there isn’t any reason I can’t afford it now — though at the time I was throwing every last penny towards it and somewhat struggling to have enough in my checking account to cover the bills as a result…

Mortgage Prepayment ScheduleLooking at the chart — if I just pay the minimum, the mortgage will be paid off in September of 2026. Seeing as I’ve never paid just the minimum on my mortgage, this isn’t a scenario I’m looking at…

I mean, in September of 2026 I’ll be turning 50. I can’t imagine still owing money on something that I bought when I was 25. I just can’t imagine that.

Really, the first few rows of the chart don’t interest me at all. I know people say that every little bit helps, I say it too, but I think that this chart proves that every “a lot” of bit really helps.

On the other side, the last few rows look a little too lofty. They also don’t seem to make enough of a difference to the end date to justify how much we’d struggle financially to make the payments in the first place.

The $1250 mark is where things start to look attractive to me with the end date of May 2014. For another $500 per month, we could fast forward things over a year.

In that scenario, my house will be paid for in less than 4 years?!

Can I delay the first floor remodel for 4 years? Probably not — I’m not really sure.

At the very least, we’d need to have “some” work done between now and then. Maybe not the remodel I picture in my head just yet but, either way, it’ll slow our progress towards this goal some.

So, for the remainder of the year, I’m going to attack the mortgage like it’s a nasty credit card balance.

I won’t throw every penny at it but I’ll be sure to fall somewhere between $1250 and $1750 each month.

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DOMO Attack!I’m not really certain what prompted it but I’ve already committed to spending over $3300 this month… and we’re only one week in.

Ouch!

So much for the budget!?

Last month, I *so* wanted to increase my savings by $1000, decrease my mortgage balance by $1000, and somehow manage to pad my checking account with another $1000 too…

Doing the math (while keeping regular monthly expenses in mind), technically, that doesn’t even seem to be possible. But, man, I came darn close in May.

So far, the new baby isn’t costing us anything more than we expected or could handle.

Of course, with child care looming in the future, I’m well aware that that’s going to change in a hurry so I’m going to do my best to put the biggest dent in the mortgage that I can while I can still afford to.

So, this past week (I’m already one payment in!), I increased my weekly additional mortgage principle payment from $75 all the way up to $230.

Wow, Brainy! How can you afford $230 per week extra?

That’s a great question, and really, if you asked me if I could afford to send between $920 and $1150 extra towards my mortgage each month, I’d immediately say “No freakin’ way…

That’s why weekly payments are the only way to go.

You can afford to deprive yourself of more than you think you can.

Doesn’t Suze Orman say something like that?

I’m pretty sure it’s her.

She’s right.

Though I’ll just be scraping by, I somehow can afford to send $230 each week to CountryWide, or Bank of America, or whatever they’re called this month…

While making this budgetary change, which all but ensures that my mortgage balance will fall by over $1000 each month, I decided to make sure my savings account balance would grow by at least $1000 per month too.

It just seemed like a good time to go all out.

Five minutes on the computer and another modification of weekly auto-transfers — an increase from $165/per week all the way up to $250 per week.

There are always at least 4-weeks per month, so I’m guaranteed to increase my balance by $1000 plus interest.

That wasn’t so painful…

So, putting it all together, I essentially increased my weekly outflow by $240.

Considering that I was totally accustomed to my previous outflow, this almost feels like I’m eliminating $1k worth of debt and amassing $1k in savings for just $240 per week.

That’s a pretty good return.

I know it’s not as simple as that — it’s actually costing me double — but it certainly feels like I’m getting a great deal.

The only spot that I’ll tank each month will be in my checking account. I can live with that.

Now I know what some are saying, “Must be nice to have a 14-figure salary… I could do that too if I made as much as you…

I’ll be the first to admit that $240 per week is not a small number. And it’s certainly not an amount that everyone can afford — and that’s okay.

I started with a $25/week auto payment to Countrywide back in June of 2007.

Twenty five bucks.

At minimum wage, that’s just a half day’s worth of work. You smokers out there probably spend more than that on cigarettes each week. Think about it.

Point is, $25 is do-able.

And it makes a difference. A HUGE difference — see for yourself.

Whether it’s for debt repayment, savings, or even investments. Automatic weekly (not monthly) payments and transfers are the way to go.

– – – – – – –
PIAC Factoid: Setting the record straight, I don’t make a 14-figure salary.

I may be a multi-thousandaire but I got there on a 5-figure salary…

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Paying the MortgageAfter last month’s success at curbing my spending, I think I thought that I was going to give it another go this month, and then the month after that.

Kind of easing into the whole new “family” situation gracefully… (by the way, still nothing to report.)

But this morning, I tossed that idea.

I’m going to attack my debts again.

I’ve done it before and I’m convinced that I’m better at paying stuff down than I am at saving up so… that’s what I’m going to do.

The only debt still on the books is the mortgage.

As of this morning, I owe $104659.21 to the former Countrywide Home Loans (now Bank of America).

Falling back on my tried and tested weekly payment method, each Friday from here on out, I’ll be making a payment of $230. This will be in addition to my regular mortgage payment.

My trusty $1.89 calculator indicates that this plan will knock off over 1% of my mortgage balance every single month.

The more reliable amortization calculator on BoA’s website tells me that this puts me on schedule to pay off the mortgage in October of 2014 — 18 years early and just 5 years away.

Now I know what you’re thinkin’…

It’s either, “Wow, this guy has a ton of disposable income” or “Shoulda bought a bigger house…

It’s actually a little bit of both, I guess, but I’m not fooling myself… I bought well below my means so that I’d have a lot of disposable income. I’m aware of that.

And I doubt that I’ll be able to stick to this aggressive payment plan until October of 2014 — I don’t expect to have this much disposable income indefinitely — but I have the ability now and I’ve shown that I’m not the greatest at saving money so this seems like the smartest thing to do with it…

And if I’m successful, I’ll be mortgage free in my 30’s… and probably semi-retired before my kids are even out of elementary school.

That’s more appealing to me than any amount of disposible income OR a bigger house…

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Some New England style house...The lack of a financial goal for 2009 is sorta making me worry… I mean, I set all of those very specific financial goals for 2008 and worked hard all year long and pretty much accomplished them all.

This year, I’ve got nothing.

I’m saving up for a home improvement project without a price tag.

It’s too, um, fluffy for my tastes.

So, in a desperate search for something more specific that I can keep track of — and after reading Frugal Dad’s resolution about downsizing his home (and concluding that while it will work out well for him, it would be a horrible idea for me), I’ve been toying with the idea of hitting the mortgage hard.

Over the past two years, my debt attacking strategy has knocked around $25k per year off of my combined debt balances. At a pace like that — now, finally, with no other debt besides the mortgage — I could theoretically pay off the house in 4 years.

I mean, just last year, when I set out to overpay the mortgage by $6100, I instead ended up knocking $11k off of the principle, almost double, while still paying down the credit cards and an auto loan.

I can totally “afford” to do this.

Yeah, yeah, I know, it’s dumb to pay off your mortgage early… But I think it’s even stupider to downsize a home that you can easily afford, while likely taking a loss on it as well.

Now, Frugal Dad intends to pay off his future mortgage (for the smaller home) in 10 years time. Maybe that means that I didn’t fall into the bigger is better trap of the last decade because, if I pay mine off in the next 4 years, I’ll essentially be paying it off in 10 years as well.

Regardless, the thought of being just 36 years old and owning my home free and clear (with no other outstanding debt) kind of outweighs the stupidity of it all. Different strokes for different folks.

Still on the fence about it though…

Reviewing My ProgressWell, 2008 is all but over so how’d you do?

I did pretty well on my goals for 2008. I mean, I certainly can’t complain.

In order of completion, I managed to increase my 401k contributions to 15% of my income, I eliminated all of my credit card debt, I paid down enough principle on my mortgage to have PMI removed (though it never actually happened), and I paid off all of my auto loans.

That’s a pretty decent set of achievements and I’m proud of every single one of them!

But there were a couple more goals on my list…

One, that I considered lofty, was to have $10k in savings.

Here, on the last day of the year, I’m finding myself in a bit of a grey area. I don’t feel that I accomplished the goal but by a technicality (my paycheck was deposited today instead of tomorrow because of the holiday), I actually have $10k at my disposal.

Just saying that blows my mind but, honestly, it doesn’t feel real.

And it isn’t all in my savings account right this minute, but it could be, so that goal was pseudo accomplished as well.

The final goal was to increase my passive income. That was a wishy-washy goal from the get-go and though my “side income” decreased by over $13k this past year, I managed to increase my 100% passive income… by just $63 over the entire year.

Hey, it’s better than nothing, right? It’s not like I “worked” for it…

So, with that, I can’t say that I accomplished all of my goals, but I think I took care of the big ones.

Hopefully 2009 goes even better — though my goals for the coming year are far less specific.

Lowered my Mortgage PaymentNo, it’s not what you think…

Each October, on the anniversary of my mortgage, Countrywide runs an escrow analysis to ensure that they’ve put enough of my monthly payments aside to pay for things like city property taxes and the premium on my homeowners insurance.

This past October was no different, in that they did an escrow analysis. Totally expected.

Unfortunately, the results weren’t in my favor like they have been in the past — not sure why I didn’t mention it back in October…

Anyway, the short of it is that my monthly mortgage payment increased $78 — due entirely to the assessment done on my house in 2007 which resulted in an increase in my tax bill. Lucky break for the city, you know, doing a city-wide assessments when the market was at it’s all time high…

Anyway, not that big of a deal, I mean, I know it doesn’t sound like much, but it’s just a little bit of an annoyance knowing that another $78/month (or $936/year) isn’t hitting the principle. Whatever — it’s not the end of the world.

It’s like I’m paying the cable bill twice or something.

The last time my payment went *way* up, the following October I received a check from Countrywide. It was an escrow overage check. Somewhere along the line, numbers were incorrect and they were collecting too much from me for an entire year.

While the check was a pleasant surprise, I was a little bothered by the fact that they had continued to over-collect for, well, 11 months when my property taxes hadn’t increased enough to justify the bill hike and my insurance premium had remained steady.

Though they paid me back, with interest, I still felt a like I’d been ripped off.

I just chalked it up as something where, once they do their escrow analysis, that’s your payment, set in stone, for the next calendar year. I dealt with it.

So this year, when I caught wind that my payment was going up, but knowing that I was going to be switching my homeowners insurance (and lowering the premium paid from escrow), I was a little ticked off.

Terrible planning on my part. I couldn’t believe I’d overlooked this…

My mortgage payment was supposed to go down this year, not up!

I paid the November mortgage bill. And the December bill.

But then when Countrywide paid my homeowners insurance premium when I’d asked them not so, I saw an opportunity to do something about making sure that my payments wouldn’t go up again next year — or ever, barring any tax hikes.

I wanted to pay my insurance premium myself — take over the responsibility from Countrywide and, in turn, lower my monthly mortgage bill.

I went back to their online customer service page, where I’ve had so much success in the past. Not.

Here’s the message I sent:

I sent a message yesterday asking Countrywide NOT to send out the premium payment for my new homeowners insurance, but today I noticed that my transaction history has been updated and the payment has already been sent (dated Tuesday).

That’s fine — I’ll call them and have them accept Countrywide’s payment instead of mine.

In the future, next year, I’d prefer to pay the premium myself instead of having it built into my escrow account through Countrywide. How would I go about changing that so that this double payment scenario doesn’t happen again?

Thanks!

And here was their (prompt!) response:

Thank you for your recent Internet inquiry addressed to the Customer Service Department.

Our records reflect that we did not receive an e-mail from you in November 2008, the last e-mail received from you was on September 22, 2008. This is to confirm that your insurance information has been updated with an annual premium of $633.00, effective from November 11, 2008 to November 11, 2009. A payment has been disbursed from your escrow account to your insurance company for $633.00 on November 18, 2008.

As per your e-mail we have reviewed your account, your loan meets all the criteria for the deletion of insurance from the escrow account. We have hence deleted insurance from your escrow account as you asked. We have analyzed your escrow account on November 20, 2008,your monthly payment effective January 01, 2009 will be $1,226.7. An Escrow Review Statement has been generated and will be mailed to you, please allow approximately 7-14 days for receipt via U.S. mail.

We have provided a breakdown of your monthly installment, which will be effective with your January 2009 payment:

Description
Principal and Interest Payment : $817.27
City Taxes ($1,912.09 semi-annually divided by 12) : $318.68
P.M.I contribution monthly : $85.15
Reserve 16.60% : $5.27
Total Monthly Payment : $1,226.37

The Reserve item is an amount equal to 16.60% of the total amount of your escrow payment for the year that is collected each month. The Reserve amount is collected to ensure that the account has sufficient funds in the event that your tax and/or insurance bills increase. When we analyze your escrow account we will adjust the reserve amount based on the actual bills paid.

Thank you for communicating with us electronically, we appreciate the opportunity to be of assistance.

Hmmmmmm… I love that they mentioned September 22. Too funny.

The PMI line still irks me, but what can you do?

And really, I’d love to know what “criteria” my loan met for the deletion of insurance from the escrow account. I never could get an answer on what criteria I had to meet to drop PMI

Whatever.

In the end, though, I got what I wanted (a lower payment — lowest since 2004!) and earlier than I’d expected, so that puts a smile on my face.

Happy Thanksgiving!

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Pierre CullifordYesterday in the mail I received a big packet from the new homeowners insurance company. It looked like an honest to goodness policy — so things look really good on that front.

But also tucked inside was a bill. Hmmmm…

Perhaps there was a misunderstanding on the phone when I called about securing a new insurance policy… I was willing to pay the premium right up front — over the phone the day I called even, but when he asked who was paying my current premium, I said that Countrywide was paying it through my escrow account.

With that, I assumed that that’s the way things would continue.

Fine by me, it’s never a good time to be writing $633 checks.

But looking at this new policy, in big bold letters, right at the top it says, “Direct Bill – Insured.”

Maybe it’s just me, but that implies that they’re coming to me for direct payment.

So I logged on to Countrywide’s website to see if they’d updated my insurance information on their end — to my amazement, they had! Hooray for Countrywide!

But it also showed that they hadn’t paid the premium. Good, I thought — I’ll just pay the premium myself.

In the past, Countrywide had paid the FAIR Plan (my old insurance carrier) LATE two out of the past three years. State-run plans for dilapidated crack houses with no running water are not cool when it comes to things like that.

One year, as it came down to the wire with my policy expiring, I paid them in person. Then Countrywide paid them again — a few days late.

Being that this was a new company and I didn’t want to start the whole thing off as a big cluster-boink, or worse, a late payment, I logged on to the new carrier’s website and scheduled a direct payment for this Friday.

I mean, the bill clearly indicated that I was being billed directly — not my mortgage company.

I felt pretty good. For about an hour.

Then I started to worry about Countrywide… Are they going to pay it a second time? Hey, at least it won’t be late this year, I tried telling myself, just paid twice…

But what if they really screw up and send payment to the FAIR plan again? Will that result in an escrow shortage where Countrywide will raise my mortgage payment for the next 12 months because they screwed up and paid a bill that never had to be paid? That happened back in 2003 or 2004…

Oh crap…

I frantically logged on to Countrywide’s website and submitted a message detailing that I’d just switched insurance carriers, and that their site correctly lists the new carrier (shocking!), but that I’d already paid the premium. I basically asked, “Can you remove the insurance premium from your responsibility? I’ve already paid the premium — I don’t need it to be paid from my escrow account.”

Then I went to bed.

I get up this morning and check my transaction history on Countrywide and poof!

They paid the premium.

Dated Tuesday. That was two days ago.

But it didn’t show up on my transaction history yesterday. Wtf?

Ugh…

So I just sent them another message asking them to ignore last night’s message because they’d already paid it — but next year, I’d prefer to pay it myself. We’ll see what they say.

Then I went to the new insurer’s site to cancel the payment scheduled for tomorrow.

What a pain!

Now, I know, I should be pretty happy that I’m now holding on to the $633 in my checking account.

Yeah, that’s a welcome “drawback”, but the anxiety of relying on a company (Countrywide) that I don’t trust is *so* not worth it.

(They’ve paid my insurance bill late twice and city tax bill late, well, always. I’m not even talking about all of the PMI nonsense. Would you trust them with your important bills?)

Really, I’d much prefer to be responsible for, and pay, my own bills.

Hopefully this doesn’t happen again next year.

Big sigh…

My parents live among houses like this...“Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth, and the rate may soon approach one in four as housing prices fall and the economy weakens, a report on Friday shows.”

That’s the opening line in an article on CNBC today.

Read that again.

“Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth, and the rate may soon approach one in four as housing prices fall and the economy weakens, a report on Friday shows.”

I realize that real estate is always “local” and no one thinks that this sort of thing happens in “their” neighborhood, but I’m sorry, that opening line is too outrageous to ignore.

One in five? And soon to be one in four?

No way.

No freakin’ way.

“The data, covering 43 states and Washington, D.C., includes borrowers nationwide, even those who took out mortgages before housing prices began to soar early this decade.”

I call BS.

There is no way.

I bought my house this decade and I’m not in that situation. I’m not even close.

I even could have purchased my house two years ago, when it was near it’s height, and I still wouldn’t be in that situation today. Value is dropping, yes, but not like the stock market did in October…

The only way that opening line could possibly be true is if roughly a quarter of all homes in the country were purchased in the last 18 months and we all know that that isn’t the case.

I look at my street, and again, I know people always say real estate is local, but my street is pretty run of the mill. The most recent home sale was about two years ago now. The one before that was, well, my house — six years ago. Things were pretty affordable six years ago.

The woman across the street — now an AARP member grew up in that very same house. If I had to guess, the average for the street is well over 15 years per house.

Neighborhoods don’t have enough turnaround to justify the numbers quoted — that is unless, of course, if they only collected data in brand new dead end cul-de-sac developments full of McMansions…

Naturally, later in the article they take a HUGE step back from the opening line saying things like, “This is very much a regional problem” and that “most of the country is not in bad shape”…

Um, okay… So what’s up with the opening line?

Shock and awe!

I guess it worked.

Can You Dig It?

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