Category Archives: Mortgage

Saving Money on Mortgage Insurance (PMI)

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A few years ago my husband and I purchased our first house–the little condominium that we still live in. When we purchased it in March of 2004, it felt like a palace. Now it’s feeling more like a dollhouse, but we still love it.

We purchased this place when real estate values were quite depressed, and interest rates were low, enabling us to purchase when it otherwise may have taken us years.

We purchased our house on a zero-down loan, and then real estate took off. Our little condo doubled its value in two years, so we went into cost-cutting action!

I wrote a letter to our mortgage company and told them since the value of the house has increased, they should adjust the loan to value calculation accordingly.

(I even included a couple of real estate fliers for similar places in the neighborhood showing the increased value).

Two months later I received a letter back saying that after researching comparable properties, they do believe that the property’s loan-to-value ratio can be adjusted giving us the needed “instant equity” to drop our PMI payment of $157 per month.

If you’re still paying PMI, here’s how to try to get the amount eliminated:

1. Write even if you haven’t experienced appreciation but you’ve paid on time every month for two years from the origination of the most recent loan).
2. Write if you have experienced equity appreciation (property values have risen).
3. Write if you have at least 20% equity in your loan.
4. If you’ve made substantial property improvements that might increase the property’s value in an appraisal.

If you are able to have your PMI cancelled, you may also get a refund of PMI from your escrow account. Good luck, and happy saving!

Day 16: Paying off Credit Cards With Home Equity?

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I know a lot of people who’ve tried to “borrow themselves out of debt” recently.

It makes sense at first glance to pay off your credit cards at 10% with a home equity loan at 6 or 7 percent. Especially if you’re in really deep. And after all, you’ve got all that home equity just sitting there.

First off, does your house look like a piggy bank?

Second, a credit card has a higher interest rate becaues the debt is not secured. That means there’s no collatoral. If you don ‘t pay, they can’t come take something to pay back the debt, like with a home or auto loan. You’re paying the higher rate in exchange for the lender’s higher risk.

If you borrow against your home to pay off un-secured debt, your buying your way out of debt by putting your home at risk. YIKES!

In the event of a real estate collapse like this one, if you lost your job and had to sell your house, the sum of your home equity loan and mortgage balance could end up being worth more than your house can sell for. A term also called being “under water.”

Think about this if you’re being tempted by the lower rates on secured loans right now. Borrowing your way out debt doesn’t work. I heard Dave Ramsey on TV last night say that nobody has ever dug their way out of a deep hole. Makes sense to me. Hard work, cost cutting and serious budgeting is still the way to get out of debt.

Just my $.02 for today.

We’re halfway through our special month on financial litercay. Do you have topics that we should feature? I’ll do the research and the legwork and offer a completely unqualified but “if I were in that position” opinion, followed by my usual disclaimer that for financial advice you should seek out the paid advice of a qualified professional. But I always enjoy the learning experience!

Living great, despite the layoff

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Try it Now! Join Lending Club.We’ve now reached the point (just a few months in) where I’ve completely replaced my previous work-outside-the-home income with my mobile notary business and my freelance writing. By implementing the tips I’ve been outlining here–even post-layoff our family is coming out ahead of where we were six months ago financially, as well as in peace of mind.

Here’s a brief list of what we’ve done so far, and where it’s getting us. Remember, my layoff was December 7th, and today is April 2nd.

  • Called all lenders and negotiated lower interest rates. Followed up by shredding all credit cards. Value: Priceless!
  • Learned to cost-cut around the house: home-made laundry detergent. Saves $7/mo.
  • Budget and track all expenses with Mint.com.
  • Renegotiated and repriced insurance, dropped the gap coverage on our paid-off/high-mileage cars. Saves $4/mo.
  • Used the library more. Estimated savings $20/mo
  • Developed passive income streams (adding advertising on this web site and others, as well as Lending Club interest). Earns $1.10/mo.
  • Rolled-over my fee-intensive 401K into a more affordable IRA Savings TBD
  • Found tax advantages to starting my mobile-notary and freelance writing business.
  • “Re bundled” our cable-TV package to the same service and same company at a lower introductory price. Saves $25/mo.
  • Received our tax refund and paid off an adoption loan ($150/mo, a credit card $100/mo and a student loan $110/mo). We have just one credit card left. Saves $360/mo in debt payments.
  • Refinanced our 30-year fixed mortgage, and rolled in our home equity loan ($329/mo). We put both into a 15-year fixed mortgage and will be paying just $89 more than we were paying on our old mortgage payment. (We used Smarthippo.com to find a better rate). Saves $240 per month and 15 years off the life of our mortgage.
  • Testing out some meat-free recipes for dinner. Last night the kids loved eggplant parmesan (they thought it was pizza!). Saves $24/mo.
  • Renegotiated cell-phone plan (due to new business). Saves $100/mo.
  • The layoff reduced our household’s commuting cost. Saves $200/mo in fuel.

    These tricks save us $981.10 per month, but we’ve noticed that now that all expenses are tracked, our household expenses have been reduced by about $1300 per month.

Here’s a few things that we’re not doing.

  • Working more than 45-50 hours per week.
  • Missing out on time with our kids.
  • Cutting our daughter’s preschool (we may do this to ‘snowball’ an extra $660 per month, but she’s having so much fun, we’re having her stay for now).
  • Clipping coupons.
  • Stuffing envelopes or participating in “get rich quick schemes” and “pyramid sales.”

Today’s Activities

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Today Rob and I checked out SmartHippo.com again and decided how to approach our refinancing project. We had our first mortgage, as well as a home equity loan of $15,000. Our first mortgage was at something like 5.5% and the HELOC at 8%. We were able to refinance both into 4.5% with our regular bank, paying one point into a 15 year loan and keep our payment very close to our existing fixed 30 year loan. We’re also going to enroll in the mortgage accelerator to pay it off faster. This is exciting! We’ll be making real headway with every payment towards being debt-free. We spoke to a number of banks today about the subject and all were shocked that we were OK with a higher payment, and that we wanted a 15 year fixed, instead of rolling our 30 year loan (now in year 5) into another 30–and extending our term by another 5 idiotic years. (Dave Ramsey calls this the “stupid tax,” meaning the premium one pays for making dumb financial choices).

Our house won’t be underwater, and we’ll still have plenty of equity. Also, we’ll be building equity like crazy, with more than half of our monthly payment landing in equity–not interest.

One surprise in this process was that so many of the companies we talked to wouldn’t recommend their mortgage accelerator program–because it was administered by another company and you had to pay a fee to enroll, essentialy the other company works like a payday lender and loans the mortgage the difference between the two payments. We searched out the right accelerator program with the same zeal that we searched out interest rates.

Another interesting surprise was that because of our recent debt-busting efforts (two credit cards and two vehicles and an adoption loan paid off) we were able to qualify for our refinance based ONLY on my husabnd’s income. This we’re told was because of our excellent credit scores and our low debt-to-income ratio. The mortgage consultant said adding the verification process of my self-employment income wouldn’t get us a lower rate as we already qualified for the lowest available rate. Saves us a lot of headache, and provides a lot of peace of mind.

Time to Refinance?

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Back in January I blogged here after reading a magazine article that explained how to know if you should refinance. It’s a tricky question for many of us. I’m personally on the fence about refinancing the condo we’ve had for five years. We’re *this* close to listing it for sale, but at the same time, if we hang out for another year or two we think we’ll gain back the $30,000 in value that the market in our area lost in the past couple of years. Decisions, decisions.

I’m working on an article for the Prosper Lending Review, which profiles a financial startup called SmartHippo Don’t confuse this with SmartyPig, another brilliant-banking-mammal.

SmartHippo.com does for mortgage shopping what Travelocity does for vacation planning. This clever Web site allows banks to post their mortgage rates, but also crawls the web for rates. Finally, it lets users add the rates that they got–and also invites feedback and comments on lenders. Talk about transparency!

I took it for a test drive this week and it helped me come to some decisions regarding if we refinance our condo or not. Here’s what I found helpful:
First, it allowed me to “window shop” mortgages anonymously. This means your FICO score won’t be pinged by a prospective lender.

Second, once I entered my info (Refi, what the property is worth, what amount to refi and what loan term I want) it spat back dozens of very attractive options. In order to sort them I had two handy little slider tools that allowed me to narrow my closing costs range and my interest rate range to what looked attractive to me.

In my mental calculations of if I should refinance or not, I’d underestimated closing costs by a lot. Until I can get a rate .25% lower than what I was seeing this week, I’m going to stay put. However, SmartHippo saved me the FICO inquiry for later–when I decide if I want to sell my condo or refinance it into a shorter-term-loan.

I’m making a note on my calendar to visit SmartHippo once a month for a while and keep an eye out for that slightly-better rate. I hope you’ll give it a try.

If you want to follow SmartHippo news, they’re on Twitter as @SmartHippo.
If you want my latest info and updates, I’m on Twitter as @Jessc098.

On the subject of washing and saving money…

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Yesterday’s post was on the subject of saving money on laundry detergent. Today that got me thinking about an older, smarter choice we made on the subject of wash that has saved (and cost) our family a lot.

When we first bought our home five years ago, it had a five-year-old washer and dryer. Within a few months of moving in we discovered a wood rot problem that meant we had to replace an entire bathroom–right down to the studs in our 2nd floor condominium. It was heartbreaking, costly, and not covered by insurance.

Just a few months later, as we were leaving on vacation, the washing machine made a terrible noise. We called in a repairman and he gave us the news. “It’s dead.”

That is really the short story of what started our debt journey. An unexpected/unplanned bathroom repair after sinking EVERYTHING into the purchase of our home and an unexpected failure of a major appliance.

We had to replace the appliance. A busy family of three working all the time–and the nearest laundrymat is quite far. We bought a washer on a credit card, and delivery of the new one, and disposal of the old one.

One year later, as we sit down to dinner, black smoke rolled out of our laundryroom. Fire in the washer–of all places. The motor burned out.

We called a repairman who has a one-hour minimum charge of $150. Within minutes he’d told us that the machine had been damaged beyond repair.

My husband was especially resourcful in how he tackled this news.

“You’ve got to charge me for an hour right?” he asked the repairman.
“Yep.”

Rob made him a cup of coffee, pulled out the laptop at the kitchen table and had the repairman buy third washing machine. Without regards to price, but finding us something that we will never have to fix again.

This wonderful repairman navigated us to the best vendor, the best machine and told us what to look for if we didn’t choose that machine. We “comp shopped” around to other vendors, and he was right. (Who would know a washer better than he?).

We’ve now had the “new” machine two years and we love it. It runs smoothly, cleans well, and saves us a fortune on detergent and water because it’s a front-loader. Our energy bills are smaller too.

That’s not all–the repairman took a look at our dryer and told us what parts would wear out next and told us how much they would cost to fix. It turns out the main belt in the dryer was just about to go (hence the squeaking). The cost of another service call and the belt would have been the same as “adding on” a dryer to our planned order for the replacement washer.

Rob also got opinions on the dishwasher we knew was on borrowed time. We saved up another year and bought the recommended Bosch dishwasher and couldn’t be happier.

Three new appliances, and one consultation with a professional.

By the way–none of the three new appliances have ever required repairs. All came with excellent warantees, and all are kid-friendly.

Paying off your mortgage by burning the candle at both ends.

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I met with someone today who mentioned in passing that he was refinancing into a lower-rate 30 year fixed mortgage. But he really wants to be debt-free in twelve years. He just needed to think of how.

I suggested, why not attack his mortgage from both ends? Rob and I have been doing this as we’ve been able. Now that we’re a few years into our mortgage, it’s a little harder to do, but we’ve definetly seen a substantial difference and saved a lot of money. I suggest that if you’ve got a little extra cash, your house is a good place to store up some equity and bust that debt a little sooner.

Here’s how you do it:

Picture a taper candle laying on its side. The wax is your debt. Now, light both ends and watch it burn. In year 15, you’ll be mortgage-debt free.

Each month you get a mortgage statement and it’s usually broken out between principal and interest, and escrow and sometimes Private Mortgage Insurance (PMI).
All you have to do is double the amount of principal paid. You usually have to write this specifically, or even a 2nd check if this isn’t the option (with the memo: apply to principal), otherwise they’ll allocate it to escrow.

As an example, our first year in our house the mortgage payment was about $1,150 per month, with just $150 going towards principal, another $150 going to PMI. PMI doesn’t benefit us–it just protects our lender–but we still had to pay it until we prooved credit-worthy and built up some equity in our home, either with cash or real estate appreciation.

Every month we paid our mortgage payment and an additional $150 or so on the principal balance. This essentially erased the current payment, and the last payment in 30 years. The next month it shortened the term of our loan also by two months. Add up that $150 multiplied by 30 years of compound interest at 4.5% and you’ll see we’ve made some substantial savings with a very small investment!

Because you’re erasing interest, your principal amounts will go up each month and your interest will go down. The earlier you are in your loan, the easier this system will be.

One or two years into following this system (or three years after you start your loan) you should call your lender and see if they’ll let you drop your PMI. We paid $300 for an appraisal and were allowed to drop our PMI at 2 years. If after dropping PMI, you also put the PMI also towards your principal (3 principal payments per month), you’ll be “in the money” in no time at all!

Side note: if you count on mortgage interest as being a great big tax-deduction for you, this may not help you–remember, it reduces the amount of interest. I personally would rather have cash than a tax deduction anyday, but talk to a financial professional if this may drastically affect your personal finances.

Just my $.02 for today. I hope it helps you out. It’s sure saved us a bundle.