The hassle of being in debt
Published on - March 7th, 2013 (Modified on - May 22nd, 2013) (by Holly Johnson) This post is from contributor Holly Johnson.
A few months ago, I wrote about how we dug ourselves out of debt. Once we cut our expenses and stopped living beyond our means, it didn’t take long to make significant progress against the tens of thousands of dollars we owed. And after a few years of struggle and sacrifice, we finally paid everything off. Once all of our consumer debts were gone, we turned our focus to our mortgage.
Because we were young and dumb when we upgraded to our current home, we didn’t put a lot of money down. Therefore, we were stuck paying private mortgage insurance. Big mistake. Unfortunately, there was no easy solution to our problem. The only way to remedy the situation was to pay down our mortgage until we reached 22 percent equity in our home. So as usual, we were learning from our mistakes the hard way. By paying private mortgage insurance, we were wasting $135 every single month.
Since only we could fix this problem, our first move was to refinance our mortgage with our current lender from a 30-year loan at 5 percent into a 15-year loan at 3.25 percent. Doing so was a giant leap forward toward our goal of becoming debt free. We were really excited about moving to a 15-year loan and found it psychologically satisfying to be paying so much more toward the principal. And since we were now free of all consumer debt, we started throwing a ton of extra cash at our mortgage every month. Within no time, we reached 22 percent equity, and I was sure that our private mortgage insurance would just magically disappear!
A complicated matter
Not so fast. A few months after we had accumulated enough equity, I called our mortgage company, MetLife, to see why we were still paying premiums. I had read the Homeowner’s Protection Act of 1998, which stated that lenders were required to drop private mortgage insurance automatically once a borrower reached 78 percent in home equity, so I didn’t understand why were still being charged. I needed answers.
Even though we had far surpassed the equity requirement by this point, MetLife refused to talk to me about it over the phone. Instead, they insisted on mailing out a PMI cancellation packet that would “answer all of my questions.” I waited and waited, and almost a month went by before I received the information. Within the cryptic paperwork, I found out that MetLife required that I get an appraisal to prove that my home hadn’t dropped in value. Fine. Unfortunately, the fine print also stated that they wouldn’t even consider dropping my private mortgage insurance until I had paid on the loan for 24 consecutive months, regardless of how much equity I had amassed.
The hassle of being in debt
Of course. Since I had refinanced into a 15-year mortgage, my “new loan” was only 11 months old. And although I typically read all of the fine print in any contract, I obviously missed this important piece of information. If I had known that refinancing would impede my ability to drop my private mortgage insurance, I probably would have waited to refinance in the first place.
Although it was my fault for not knowing their PMI cancellation policy, I asked my lender to reconsider their terms. After all, I had been their mortgage customer for over five years. Not surprisingly, they stated that my old loan didn’t count and they wouldn’t consider dropping the premiums until I had made a payment on the new loan for 24 consecutive months. After 24 months, I could pay for an appraisal and ask for the PMI to be taken off. Even then, they stated that they couldn’t guarantee anything.
This is what I hate about being in debt.
Being in debt means being obligated to someone else. It can mean sorting through pages of fine print to try to prevent yourself from getting screwed. Being in debt means spending time and energy keeping track of how much you owe, and making sure that you aren’t paying unnecessary fees or interest.
Being in debt is a major hassle, and this entire situation is a painful reminder of why we want to become debt free in the first place. I hate debt.
Searching for solutions
Unfortunately, hating debt isn’t enough to make it go away. And since I didn’t want to waste money on private mortgage insurance for another 13 months, I started looking for a solution to our problem. The Internet has a plethora of good and bad information and I began the frustrating task of sorting through it all, hopeful that I could find a solution.
I didn’t want to refinance my home again. After all, refinancing can cost thousands of dollars that would easily wipe out any savings I would earn by removing the PMI. Right?
Wrong. Actually, I found out that there are some ways to refinance without paying closing costs at all. A few different sources led me to Amerisave. After speaking with an agent, I learned that I could indeed refinance my home without paying any closing costs. The process, called a “no-cost refinance,” meant that the lender would pay all of my closing costs and fees in exchange for charging a higher interest rate.
Paying a higher interest rate sounds counterproductive. But in my case, it made perfect sense. Interest rates are now lower than they were when I last refinanced. And since rates were lower, I could now refinance my home into a new, 15-year fixed-rate mortgage at the higher rate of — you guessed it — 3.25 percent. Basically, I would be trading in my 15-year mortgage for the same loan, minus the pesky PMI. And since my new loan would also have no prepayment penalties, I could keep moving forward with my rapid debt repayment. My only out-of-pocket costs were going to be an appraisal, which MetLife required anyway, and $15 to pull my credit report.
Moving forward
Thankfully, we found a solution to our predicament and went ahead with yet another mortgage refinance. Unfortunately, this meant expending precious time and energy gathering all of the necessary documents. And while it was a pain to get all of the required paperwork together, Amerisave did offer enough lender credits to allow me to pay nothing for the refinance. Now that it’s over with, I am thrilled to be done with private mortgage insurance once and for all. I will never make that mistake again, and now we’re back on the fast track to becoming completely debt free. I cannot wait until the day I get my final mortgage bill in the mail, and I actually fantasize about writing that check. Until then, I will be counting down the weeks and days until I’m debt free. It has taken a lot of hard work and dedication, but we are making progress. And I know that one day, I will no longer have to deal with the hassle of being in debt.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
This article is about Debt, House and Home
Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
Discover is a paid advertiser of this site. Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
SEARCH FOR RECENT ARTICLES
I`m glad that despite things beeing difficult, you found a solution to the problem! I`m currently saving for a downpayment for a house, we need a minimum of 15% which means about a minimum of $80k in savings. at least! So I`m glad to have to opportunity to read about how others handle their mortgage, so the day I`m buying a house, I`ll know the pros and cons.
loading....
Wow 15% deposits is $80,000?? It sounds like you’re talking about Australian housing prices there! Also if you want to read more about how to buy a house as well as pay it off quickly (in say 5-7 years quickly) you can read my blog on the subject matter.
http://www.mutilatethemortgage.com.
It’d probably be a handy site for this Holly character too as it sounds like they’re still paying off their mortgage.
loading....
Wow 15% deposit is $80,000?? It sounds like you’re talking about Australian housing prices there! Also if you want to read more about how to buy a house as well as pay it off quickly (in say 5-7 years quickly) you can read my blog on the subject matter.
http://www.mutilatethemortgage.com.
It’d probably be a handy site for this Holly character too as it sounds like they’re still paying off their mortgage.
loading....
good for you! And a great warning about PMI.
loading....
I don’t know if banks still do it, but a good alternative to PMI is a piggy back loan. It’s a 2nd loan. That’s what we did when we only put 10% down. Be sure you get one with no prepayment penalties and you’re good to go. We just prepaid it off in the first 5 years of living in the house.
The only problem with a piggy back is that it is usually a balloon loan. It was amortized over 30 years but would have come due in full at 15. For this reason, I wouldn’t recommend a piggyback unless it is on the low end. Ours was only 15,000, but it was at 6%. This is another reason to pay it off quicker. But, unlike PMI, you are released from the loan free and clear. In addition, any second loan will interfere with refinancing, since no one wants to be lower down on the list of getting paid if you default.
Regardless, in hindsight we should have been disciplined and waited until we had 20% down.
loading....
We had a 2nd loan to avoid PMI, and though the interest rate was obscene we were able to pay it off quickly. However by the time my sister bought a house a few years later, the 2nd loan was no longer an option. They had to pay PMI for a couple of years and then submit the volumes of paperwork required to make it go away. :-/
loading....
Another alternative is to pay the PMI upfront. When I purchased my house we settled for a 2100 upfront payment for the PMI. Much better than the 1200 or so a year for 5 years.
loading....
Being in debt is difficult
loading....
There is no way I would get a mortgage… no way! I am too nervous – I would be worrying constantly “what if”
loading....
Do you pay your rent every month? Because — assuming you buy an equivalent house (as we’re doing) — that’s really what a mortgage is…
loading....
People keep telling me that “you’re paying $x in rent — that’s a mortgage payment on a similar sized condo.” It’s not quite so simple — my rent covers some insurance, maintenance, reapairs, appliances, landscaping, property taxes and some utilities. When I buy, all those costs are in addition to a mortgage payment, not to mention decorating and renovations.
I’m trying to approach buying from a total cost of ownership point of view rather than just the monthly payments. I’ve had friends have to tackle sudden, major repairs so I’m a little wary.
loading....
yes, I sometimes think renting would be so much simpler! But they both have their costs and benefits, so in the end I don’t think it matters much. Also in my area rent is expensive, and our mortgage is cheap.
loading....
@Ely — I hear you there! I think the renting versus buying debate is more than math. I want to buy because I want more autonomy and control over my living space. I’m not buying because I might move in the next year or two and the Canadian real estate market is starting to slow. It feels like a juggling act between emotion and math right now!
loading....
We’ve been so much more relaxed since buying. I had a really bad experience with a landlord accusing me of tons of damage that I didn’t do. Ever since then, I was always super paranoid in rentals. Now that I own, if I put a scratch on the hardwood floors? So what! It’s mine anyway. Ding in the drywall? Oh, well.
I guess it all depends on your perspective. Yes, it is more expensive to own in most cases, but it certainly has its benefits, including being able to change that annoying faucet and somehow feel as if this decision might pay off even beyond your daily enjoyment. Sure, a return on real estate is never certain, but ownership has its own intangible rewards for those who desire it.
loading....
Rent = mortgage payment misses so many parts of the picture. There are pros and cons to both, and the increased costs and maintenanence that come with home ownership are only part of the picture. Renting gives a lot of flexibility, and there are a lot of extra costs even just with buying a home (closing costs, etc) that if you think might be moving again in the forseeable future ownership doesn’t always make a lot of sense.
loading....
It really is a constant debate on the whole rent vs. buy. The simple fact is that there is no clear answer. My financial situation is different from yours, so while I may be better off renting, you might be smarter to buy. It really is dependant on your entire financial situation, your lifestyle, and your plans (both short and long term). My only advice would be that if you are planning to buy, you do the necessary research and have a plan in place before jumping in.
loading....
Just a reminder that paying for PMI is a cost, but isn’t necessarily a mistake.
Perhaps you should have been willing to remain renters for longer, or to have purchased a smaller house that you could have put more money down on at the time that you purchased, but buying a house with less than 20% down is a choice that you make that has a cost with it – in this case only about 1500 per year to be able to start owning instead of renting. The mortgage company is taking a risk on you when you have less than 20% equity, and this protects them so they can make you the loan. That’s usually a good thing.
The only other thing I would have done differently is to go back to your current mortgage holder once you have the new loan information on hand and offer them the “opportunity” to keep you as a customer if they will drop the PMI on your current mortgage. The insurance company may not allow them to do that, but it would have been worth asking.
loading....
I don’t know. In my particular situation, I do consider paying PMI a mistake. We weren’t renters at the time. We actually had two rental properties when we bought the home we live in. If I had to do it over, I would have waited to refinance or just shown up at closing with the cash to remove the PMI in the first place. Of course, hindsight is 20/20.
And I did ask Metlife to reconsider:
“Although it was my fault for not knowing their PMI cancellation policy, I asked my lender to reconsider their terms. After all, I had been their mortgage customer for over five years. Not surprisingly, they stated that my old loan didn’t count and they wouldn’t consider dropping the premiums until I had made a payment on the new loan for 24 consecutive months.”
loading....
I understand that you now think paying for PMI for this home was a mistake. I think it’s important to note that paying PMI can be the right thing to do in some situations.
Paying for PMI is an opportunity to get what you need now, at a cost. Were you paying PMI on the home you were living in at the time? Could you have lived in that home longer before moving? For some it’s obvious that they need to move now (relocation across country, baby on the way, elderly relative coming to live with you, lost the lease on your current home), and paying the PMI is a way to get into the home they need.
As for asking the mortgage company to reconsider dropping the PMI: Maybe it’s in the editing, but that didn’t sound like you took your request to Metlife after you had already found the new loan.
You wrote the order of events as “you asked Metlife to reconsider” and then “you started looking at other options for refinancing”.
My point was that if you really wanted to stay with the loan that you had, you go back to Metlife again (right before you sign the papers for the new loan) and say “I’m about to refinance because you won’t consider dropping my PMI for another year. Any chance you re-consider now in order to keep my business?”
Again, their hands may be tied by the insurance company, but maybe not. It sounds like you weren’t that attached to this mortgage company anyway…
loading....
Hey Jennifer~!
I think you’re missing the point of the story. It’s about how I turned something I deemed to be negative (paying PMI) into a positive by refinancing.
While I personally wouldn’t pay PMI again, it’s up to each person to decide what is best for their personal situation.
And no, I didn’t ask Metlife if they would reconsider a second time. I asked them once and they made it clear that I would have to pay PMI for the full 24 months….so I moved on. You’re definitely right that I wasn’t particularly loyal to them for any reason.
Thanks for commenting!!!
loading....
Hi Jennifer B!
I think your points are perfectly reasonable. They also show that you read the post thoroughly before commenting. Holly’s replies sound a tad defensive…
I don’t believe you missed the point of the story at all. Funny how people (including myself for my very first home) are willing to pay PMI to get into a home they don’t choose to put 20% down on. Once the loan has closed and they get into the habit of monthly payments, PMI becomes the enemy.
My husband and I are about to purchase a very expensive new home. We are putting over 50% down, so no PMI. If I hadn’t bought that first home with PMI, we wouldn’t be where we are now financially. Oh, yes, our financial planner assured us that we have all our ducks in a row and enough eggs in enough baskets to afford this new home. Couldn’t have done it without PMI on that first house, though. Just a different POV.
Don’t get me started on 15 vs. 30 year loans, either.
loading....
Diane, Please do get started on 15 versus 30 year mortgages! Would love to hear your take on those.
loading....
You didn’t ask my opinion, but I’ll give it anyway.
I personally wouldn’t take one, mainly because I think that prepaying a 30 year mortgage can accomplish the same thing without the risk. We ran the numbers when we refinanced last year and decided to go with the 30 yr even though we could afford to get the 15 yr. The rates weren’t that much different, and I was more comfortable with the former. Instead, we just pay a certain amount more per month on the mortgage.
My husband works in finance, and while his job seems stable, you just never know what the future will bring. A lower 30 year mortgage just made sense to us in terms of security.
The long and short of it, if you are certain that you will remain employed and healthy for the next 15 years, go for it! Otherwise, choose the safer bet and just start prepaying.
loading....
BC-
What Jane said.
Except the prepaying part. I would say “just keep saving”. The most powerful place to keep your money is under your control. Once you’ve prepaid your mortgage, that money is GONE. You can’t use it for anything else. To paraphrase someone much smarter than I, get the biggest, cheapest mortgage you can AFFORD and NEVER pay it off early. Unless, of course, interest rates drop even more, which is not all that likely. Then you can re-fi, which is technically paying off one loan and buying another.
loading....
“To paraphrase someone much smarter than I, get the biggest, cheapest mortgage you can AFFORD and NEVER pay it off early”.
WOW! Did I just have deja vu? Is it 2007 again? Famous last words for many former homeowners turned renters in the past 5 years.
loading....
Hi Curtis – The key word is AFFORD, hence the caps.
loading....
I wish this was something I would have thought more about prior to purchasing my home. I was in such a hurry though to buy while the banks were so easy with giving loans. Luckily the PMI isn’t much on my very small loan. Unluckily, the value of the house has fallen, so there’s no getting it removed early. Live and learn!
loading....
We have PMI with our mortgage as well. We didn’t really think about it when we were buying, and didn’t think it was that big of a deal back then. But UGH! Just to think about the amount of money that we are spending on PMI every year is crazy.
loading....
Oh, how I wish we could refinance so easily (twice, even!). We live in Florida, where the bottom has dropped out of the market, so we’re upside down and unable to do so (government programs would only help if we were in a hardship, which we’re not, or if our loan was owned by Fannie/Freddie, which it’s not). Bummer. Good for you though!
loading....
Congratulations on finding a solution to your problem. It was a big hassle but it was worth it in the end. You’re smart to recognize it as a learning experience. It was costly but learning is never wasted. Best of luck to you.
On the subject of 15 vs. 30 year loan: I too threw every extra dollar toward paying off my mortgage early. I now realize the time value of money better and wish I had taken the extra money every month and invested it for the future instead. I wasted precious years of growth just to pay off my loan early. That’s especially true in these times of very low interest rates. The extra money each month could be invested and earn you more than you would save in the long run.
loading....
Depends on the rate of return on your alternate investments and the mortgage rate in question. To get returns that are more than a typical mortgage, you’re going to have to accept some risk, and that usually means no guarantees of those fab rates. However, if you pay down your mortgage, you’re 100% guaranteed to save all that interest you would have otherwise paid. So…that’s why I’m paying off my mortgage AND investing. LOL.
loading....
Very helpful and informative article. My wife and I have been saving for a down payment for a while now and have very preliminarily started looking at houses, but we would probably need the PMI if we wanted to purchase something reasonable in our area (Massachusetts). Your experience is a great reminder of the hassles of being indebted to someone and certainly serves as a word of warning. Thanks for sharing and congrats on finding a solution!
loading....
I feel your pain. I live in California, and have lived through many “real estate cycles”, but nothing quite like this. I’m guessing that by the time my home’s value “recovers”, low interest rates will be a thing of the past.
loading....
Debi makes an excellent point. While I can understand the psychological need to pay off the mortgage quickly to be debt free, that extra money would be put to much better use if it was invested for retirement with the average ROI being 8% (plus the compounding factor) compared to the 3.25% you’re paying. This is a much better use of the money particularly if the home you’re in is not the one you plan on keeping forever.
loading....
” the average ROI being 8% (plus the compounding factor) compared to the 3.25% you’re paying.”
It’s really not that simple. There is no investment out there guaranteeing 8% — not even close. Sure, there are things returning 8% but they tend to be riskier than most people who are just out of debt should be considering. Or they require a huge initial investment that will not be available to someone just out of debt.
8% is an old number. A number from the years and years when you could put money into an insured account and get 5-7% easily. I wouldn’t be counting on greater than 4%.
loading....
I’m glad you found a way to make it work! We also hate being in debt (we had $65K of student loan and credit card debt and have since paid it off) which is why we plan on buying our first house in cash. We will never again have debt of any sort (assuming everything goes according to plan).
loading....
Read, read, read those big contracts, understand them and get your issues and questions addressed before you sign them. If you had read and understood this term of the contract you could have (1) made an informed decision (2) negotiated an alternative.
When we recently refinanced one of the requirements of the new loan was to escrow our taxes and insurance (which I hate to do for a variety of reasons) so I negotiated the issue and got an agreement that we only had to escrow property taxes (and since we live in South Florida, taxes are much less than our wind and hazard ins). Additionally I negotiated that after two years of the new loan I would not have to escrow for taxes anymore.
loading....
What an awesomely inspiring and informative post. Thank you so much Holly for sharing this and I’m rooting for you all the way to debt freedom.
loading....
I admire your determination in finding a solution and a way to save money. So many people just go with the flow and don’t really understand all the options available. Good job!
loading....
Good Post! This is a great cautionary tale and it seems to very common. I know someone who is going through much the same thing. PMI may be necessary to protect the lender up to a certain point but making the bar so high to drop it has a certain predatory air to it.
Reading contracts helps but sometimes the terms are deliberately vague and if you question them you are told that they are standard. These boilerplate contracts are written by teams of lawyers and you don’t stand much of a chance understanding all the ramifications in advance and they won’t change any terms before you sign. The best defense is not to get embroiled in too much long term debt and to learn from stories like this.
ETA: just read Sam’s comment. If you are able to negotiate terms that is great.
loading....
There’s a high probability you know this, since PF blogs usually cover it at some point, but writing the check alone doesn’t actually end your mortgage. Prepare several months in advance of that last check to have all the required materials together, and know your lender’s policy so you don’t get blindsided!
loading....
I’m not aware of this. Would you elaborate? Thanks.
loading....
This is news to me, too. Can you please elaborate?
loading....
Explanation now in this thread, in response to the commenter before you.
loading....
YES! There’s no glitter or blow curls when you send in the last check. No “thank you” or “congratulations.” In fact, you don’t just write a last check. You have to call first, they have to estimate the final payment with the additional interest, and you get to go grab a certified bank check. My final call, as I recall, was automated—woo-hoo. While you wait…you have to do all of the lip service on the transfer of insurance and WAIT, and WAIT, and WAIT (mine was 3 months)…for the release of lien to come your way and the return of any funds held in escrow. Then, you have to run around, get the county involved so to have the deed transferred and the lien released and the property tax responsibility transferred—GOOD TIME TO THROW THAT PUPPY IN A REVOCABLE TRUST—then…you have the burn the mortgage party. But, you no longer care at that point. Ya really don’t. Moving on.
loading....
That sounds amazing and I cannot wait!
I’m about 27 months away from my last mortgage payment but I will definitely be celebrating when the time comes!
loading....
I know Holly. You ARE going to be so excited!! So close you can taste it, I’m sure! It is fun to dump that payment and REALLY own. I hated paying interest. YOU GO GIRL! Excellent.
loading....
You’re right. It is so close that I can taste it! We could technically do it faster but our budget is about as optimized as it can get. We also still save aggressively for retirement and in our kid’s college funds so that slows down our mortgage payoff slightly. Plus, we still have to live, have some fun, and go on vacations over the next 27 months. If I cut anything else out of my budget, I think I would go insane before we paid our house off =/
loading....
Generally, mortgage companies required a certified check and official payoff letter. What they want in the letter might depend on the company. Some companies require you ask them for a payoff quote before submitting the check and letter. It shouldn’t be too involved of a process… unless you end up with the one that is. Or you do it wrong the first time and end up in mortgage-payoff-purgatory. It’s worth checking on in advance.
loading....
Holly – this was a good article. And I can totally relate — when we bought our house, we put nothing down! What a mistake, and of course before the bottom fell out of the market.
Our mortgage has been sold TWICE and we’ve since refinanced. Debt is such a hassle. Cutting up our credit cards was as much about avoiding debt as about simplifying our lives.
Our mortgage should be paid off in 21 months! Woo hoo! Can’t wait to send that last payment!
loading....
I am in the process of refinancing right now specifically to get rid of my PMI, but mine doesn’t cost $135/month, it costs $500. The refinance will pay for itself pretty quickly.
loading....
When DH & I bought our house in 2009, we had to get PMI as it is an FHA mortgage with 3.5% down. Buying this way was the right thing for us to do: we’d lost our unusually cheap, good apartment (for those who know Boston, a 2-bedroom on a dead-end street in Brighton for $950/month – eventually it sold and the new landlords invited us back for the market rate of $1600/month – no thanks), and were in an unsatisfactory and more expensive apartment with no hope of getting a better one (and we found out that 6 months after we moved, the landlord died and the new landlord jacked the rent up to $1800). I’d rather pay $1450/month mortgage + $550/month taxes, insurance, and PMI and have a house than $1600-$2000 for an apartment.
But we went into it knowing we’d have to pay PMI. We’ve thought about refinancing, but we’re better off waiting till the mortgage balance is down to 78% first. In shopping for a refi, we found the new requirement is that the existing balance on your mortgage be no more than 80% of your home’s worth, so we might as well make it 78% and drop PMI.
Plus, PMI can be deducted from your taxes. I think it counterbalances at least some of the potential savings from a refi, at least early on in the life of the loan.
Holly, good story. Congrats on successfully refinancing and dropping PMI. Someday DH & I will do likewise!
loading....
Depending on how much you have left to get to that 78%, consider a refinance with the option to pay a one-time PMI up front. I did this (bought in 2011 @4.5% int, 3.5% down, FHA, monthly PMI, 30yr term –> refinanced to 3.625%, 5% equity after 1 yr payments, borrower-paid up front PMI, 20yr term) and more than doubled my monthly principal payment while reducing the overall payment by $50, combining savings from reduced rate and no monthly PMI.
Lenders have the option of making upfront PMI payments to their insurance brokers and rolling the cost into the interest rate on your loan. After finding this out I asked if I could do the same on a refi and lo and behold it was an (unadvertised) option. If you are still sitting at less than 12-15% equity, try crunching the numbers and see if it could give you significant savings. Get quotes on refi costs, up front PMI (~2-3% of loan value), and what you could get for improved rate on a shorter term loan. If you want some spreadsheet templates just reply. I would be happy to distribute what I used.
loading....
Troy – I’m interested, although I confess I’m not sure how you did it. Admittedly we didn’t do heavy looking into a refi, but the little I did, I was told that we didn’t qualify due to lack of equity. Off the top of my head, the original mortgage was around $269K (no, we did not buy a mansion: in the Boston area, that got us a 3BR 1BA Cape at 1200 sq ft) and we owe around $251K still. I looked into a HEL last year when our roof died and they did an appraisal that showed the house was worth exactly what we paid for it. (Didn’t qualify for the HEL either; my brother loaned me the money to cover the roof and I am paying him back on a regular schedule). Thanks!
loading....
Without knowing more details, it seems like you have enough where you ought to be able to qualify for a refinance with somebody. Correct these number if wrong…
Mortgage (3.5% down FHA) – $269k would mean purchase price of $280k, and in 2009 you would have somewhere just north of 5% interest rate and 0.5% PMI. That would put your monthly PMI at $117.
An upfront PMI at 3% would be $8400 or 6 years of a monthly PMI of $117. If you are on a 30 yr loan, you still have 16-17 more years of PMI to pay before you are under the 78-80% LTV mark, meaning you would save about ten years worth of monthly payments. If you were able to get a 1% reduction in rate, you could cut down another $200 per month, putting your breakeven in the upfront costs to less than 2 years.
All depends on credit score, what kind of rates (interest and PMI) you have now, of course. When I run numbers I leave out homeowners and property tax as they are the same regardless, and probably much different in Boston than the midwest where I am. Am I close on numbers? Don’t know if we can do private messaging on here but I understand if you don’t want to put all the details in the comments of a popular blog.
I’ll point you to a couple resources I used when doing this: One is mlcalc.com which is just a mortgage calculator, shows current rates and amortizes monthly or yearly. You can play with different rate projections and loan terms. Other is Quicken Loans. I didn’t get my mortgage with them but they sure had lots of nice people call and talk to me, and they were more than happy to answer questions.
Another consideration would be a credit union if you haven’t already tried. My local one (didn’t go through them either, but they were also helpful in determining options) offered a piggyback HEL to cover equity up to 20%, then a conventional loan for the remaining 80%. The HEL had higher rates but it would have saved money over paying PMI monthly.
loading....
Troy, thanks. O.K. – pulled a couple numbers that I don’t mind floating around on the internet forever. The $269K was roughly the original price. The original mortgage amount was for $264,127; it’s at 5.375% interest for 30 years. Current balance is $250,805.276. All payments on time and I’ve managed until this year to add (very) small amounts onto the principal. I don’t know my exact credit score, but it’s been around 700-710; ditto for DH. All bills have been paid on time (early) fah-ev-ah, but we’re carrying (too much) credit card debt (at Dave Ramsey Baby Step 2) which causes the ding. We’re working on getting that paid off; major house repairs last year set us back.
Thanks, Troy & Sara, for the advice and encouragement. I think I’ll take a personal finance day as recommended earlier and focus on trying to get a refi. I belong to a credit union, which is where I tried to get the HEL last year; at the time, the loan officer complained repeatedly that they were swamped with refi requests and it took 2 months after submitting paperwork to find out we didn’t qualify for the HEL (after I called them repeatedly and then gave up; I already had the loan from my brother and the roof work done by the time the CU formally denied the HEL). Current mortgage is held by Wells-Fargo and I simply don’t believe they would do anything to help me that would cut their profits. Hope this info helps.
loading....
If the house is still worth $269k, you should be able to get a conventional loan for 95% of that value or about $255k, with WF or otherwise. If you owe ~$251k, this gives you some room ($4.5k or so) to finance lump sum payments like closing costs on a refi or a lump sum pre-paid PMI.
Here are two scenarios you might be able to work:
1. Refinance into a 95% loan, paying upfront borrower-paid PMI. At a 30 year term, 4.25% interest (reasonable for a ~700 credit score considering you could get lower than 3.5% with a really good score). Your current payment of ~$1595 plus taxes/insurance would go down to ~$1255 plus taxes/insurance. Even paying for 4 additional years (refinancing into a 30 year term after paying 4 years on current loan), this saves you roughly $18k over the life of the loan.
2. Same, but 20 year term and slightly lower interest rate (comes with shorter term) of 4%. This saves you $99k over the life of the original loan (next 26 years).
Doing some calculations, it looks like your break even point on a refinance is 4.6% on a 30 year loan. If you get less than that, you start to save money on the refinance even extending the loan 4 years. If you do a 20 year, you virtually guarantee yourself savings in the long run, though you would need something around 4% or slightly higher to lower your monthly payment. The key is the combo of getting rid of PMI by paying it upfront (which for you would be ~$5k most of which could be financed and still have less than 95% loan to value on the loan) and lowering your interest rate. Lowering your term to 20 years would be killer for you since you would save so much on interest in the long term. I would encourage you to shop around, online and with larger mortgage brokers. Someone will give you this loan!!
loading....
Forgot to mention, in option 2 above you still have a cheaer monthly payment than you do now by about $50 (20 yrs, 4%, upfront PMI). Good luck and let me know if I can help you with any more numbers!
loading....
Laura, ask your bank about refinancing. We recently refinanced with less than 20% equity (had about 9-10% equity) and were able to qualify through a HARP program. Looks the same as a regular mortgage up front, but there’s some different paperwork on the back end and it got sold off to Fannie Mae after we closed. We were about to go from a 5% rate to 3.625% on a 30 year and could have have chosen 2.875% on the 15 years. I didn’t think we could re-fi since we didn’t have 20% equity, but we could. It’s worth at least asking.
loading....
I think it’s funny when people (not you, Holly) say things like, “I stopped renting because I was tired of throwing money away,” yet they think nothing of paying PMI every month. Isn’t that throwing money away too?
EDIT: I posted this before seeing Laura’s post above. I wasn’t referring to her either, since she obviously factored the cost of PMI into her decision-making process. (BTW, I’m in the Boston area too. $950 for a two bedroom in Brighton is an amazing deal!)
loading....
The “throwing away money” argument always gets me. I would love to see a breakdown of my rent to see how much of it is actually “paying someone else’s mortgage” and how much is other costs like property taxes, maintenance, etc. Home ownership involves a lot of costs that don’t build equity — such as real estate agent commissions, mortgage interest, home inspections, mortgage insurance, other closing cost, etc.
Renting makes sense for me right for a variety of reasons, but I don’t consider it throwing away money. I’m getting something in return for my spending — a place to live!
loading....
Right! You need a place to live. Do people think buying food or clothing is also throwing money away?
Right now, I rent and my landlord pays all my utilities. If I owned a place, that would be a few hundred a month in additional costs. (I do want to buy eventually, but that’s partly so I can retire without a housing payment.)
loading....
Somewhere I read that a mortgage is prepaying your rent for 30 years. Now, my rent is about half what a mortgage would be for a comparable place. We do maintenance around the place, so it has not increased and we are still paying the same rate that we were when we moved in 6+ years ago. There’s no guarantee that my rent won’t increase, but there’s no guarantee that property taxes won’t increase either.
loading....
Thank you, Elizabeth for what you said. As a landlord, I get the feeling from a couple of my tenants that they’re “paying our mortgage”. As you aptly noted, there are a lot more costs to land-lording than a mortgage. We’re just breaking even this year because of some expensive renovations.
I guess I shouldn’t expect them to know this since they’ve been lifelong renters, however. Sigh.
loading....
This lifelong renter thinks that you’ve just confirmed exactly what your tenants are telling you….
“We’re just breaking even this year because of some expensive renovations.”
So, that means, on TOP of major renovations, the income from your tenants has completely covered your expenses on the house. In other words….they paid your mortgage. (and more). Right?
loading....
No worries. I think it really comes down to one’s particular situation: sometimes, probably most of the time, avoiding PMI with a large-enough down payment is the right thing to do, but sometimes there’s a squirrelly set of circumstances (like mine) where it beats the alternatives. FWIW, if I had thought there was any hope of getting a comparable apartment to that sweet $950/month deal, I absolutely would have done so instead of buying. But life is what it is.
FWIW, I see paying PMI to buy a house “now” (as opposed to waiting till I’d saved the $54,000 I’d have needed for 20% down) as buying the security of knowing that my landlord won’t arbitrarily decide to give notice because s/he wants to do something else with the property. When you rent, you always have to remember that it’s somebody else’s place and you are only borrowing it. It isn’t yours. While it’s true that a mortgage is functionally the same, the bank isn’t interested in tossing you out so long as you’re making your payments and not committing crimes. It’s also nice to not have a neighbor on the other side of the wall screaming obscenities and shoveling out his car by tossing it onto our car; also nice to not have a landlord who stops by every month to check his apartment over (this was the place we wound up in after losing the $950 place).
loading....
I’m sorry Holly had a tough time with her mortgage and getting rid of her PMI. We had quite a different experience. We bought our home in early 1997 for 130k. We put down 5% ($6500). At the time we purchased our home, the mortgage company had assessed our home at 138k.
We immediately made some changes to our home, like put in a new garage door and pulled up a lot of overgrowth that within three months probably added another 7k or so in value on curb appeal alone. But of course the housing bubble was just beginning. Exactly 15 months after buying our home, we paid a bank approved appraiser $250 and our home was reassessed for 175k, well over what we needed. Sent the appraisal into the mortgage company and the PMI was gone. I was sorry I hadn’t tried to get rid of it sooner. Easiest money we ever saved.
loading....
To me, this story wasn’t a warning about debt, but more of a lesson to read any legal document thoroughly (and understand it) before you sign. Whether it’s a credit card, mortgage auto loan, insurance policies–doesn’t matter.
I didn’t always do this because I felt pressured to quickly sign because the person across the desk had already explained the terms, so why did I need to read anything? But I’ve come to realize that I could be potentially signing my life away and not even know it. I mean, there could be fine print buried that says I pledge my firstborn child and I wouldn’t have a clue!
loading....
A suggestion to anybody looking for PMI alternatives: Borrower-paid upfront PMI. I was paying 1.15% PMI on an FHA loan (which would amount to $2300 annually on a $200k loan). When I refinanced this year I searched and searched to find an alternative to this huge monthly burden and first found LPMI, which is an upfront lender-paid PMI that usually gets incorporated into your loan as an interest rate bump of 0.25-0.5%. I figured that if they can pay up front, I should be able to do the same. Although the mortgage broker didn’t advertise this as an option, when I asked it was available. I ended up spending less than 2 years worth of monthly PMI up front to save 9 more years of paying in monthly ($3500 up front BPMI vs >$20k paid over 9 years if monthly). It was enough to cut ten years off my term and still reduce my payment by $50 monthly. This ended up being a better deal than either LPMI or a piggyback loan (80/15/5) through the local credit union.
Bottom line, it’s worth exploring lots of different options and being aggressive when asking for features with your mortgage broker. Also, be willing to shell out some cash up front for savings down the road. My total savings on this transaction over a projected 30 years ended up being $120k on a $225k home. Not bad for a few days worth of phone calls and number crunching!
loading....
I don’t know if PMI rates have gone up significantly in the past few years (would make sense if they have) or if we got an unusually good deal in the mid 1990′s. Our PMI on a similarly-priced home was less than a third of what yours was–$720/year. I was still glad to see it go away a few years later. We’d put down 10% and houses were appreciating so it didn’t take too long.
loading....
Ours was 1.15% with 3.5% down and an FHA loan. The over $200 per month was enough to make me physically ill!
here is some information on newer rates (from http://themortgagereports.com/7570/fha-mip-cancel):
Annual MIP is required on all FHA mortgages. Premiums vary according to your loan traits.
Until April 1, 2013, the MIP schedule for new FHA loans is as follows :
15-year loan terms with loan-to-value over 90% : 0.60 percent annual MIP
15-year loan terms with loan-t0-value under 90% : 0.35 percent annual MIP
30-year loan terms with loan-to-value over 95% : 1.25 percent annual MIP
30-year loan terms with loan-to-value under 95% : 1.20 percent annual MIP
loading....
Love this post. I hate debt too! Though I’m still in it.
My mortgage lender (Wells Fargo) says it will automatically discontinue my PMI at 78%, but I can put in a proactive request for termination once I hit 80%. When I purchased 3 years ago, my mortgage broker made it sound like that’s pretty standard.
loading....
I enjoyed your article, Holly!
loading....
I love this post! Very clever way of ditching the PMI, Holly. Congrats!
I personally think that no one should worry about PMI, because if you cant put 20% down, you shouldn’t be buying.
loading....
I would modify that by saying that if you can’t put 20% down, at least know where your money is going. There are plenty of ways to save on PMI costs, and if you take a long term view of things buying with less initial equity can be advantageous. In many circumstances nowadays, the low fixed rates of long term loans can help you make more with your cash through investments into the market rather than investing in home equity, especially if you are smart about PMI options.
loading....
I disagree with your 20% down statement. With such low interest rates the 20% mantra is not a valid as it used to be.
On a 200,000 dollar house with todays interest rates a 10% down payment means the difference of roughly 90$ a month in mortgage payments and about 25,000 extra over the life of the loan. Also with the option to pay PMI upfront (usually around 1% of the home value), you can avoid monthly PMI payments.
So in the long run, avoiding paying the additional 20,000 for a 20% down payment, is only costing you an extra 7,000. That 20,000 could do alot more work for you outside of a home loan (assuming said buyer has it).
This is an over simplified explanation yadda yadda, but the point hold.
loading....
In theory I agree with you that there is nothing inherently wrong with buying a house with less than 20% down. But I think the larger point (at least for me) is about financial discipline. Plus forcing yourself to put 20% down lowers the amount of mortgage that you will probably take out. It’s the same thing with a car. Even if you can get a 0% car loan, if you force yourself to only buy a car in cash, that probably means you are going to buy a cheaper car. I just think there is much more danger of buying a car or a house that is out of your price range if you rely on too much credit to get it.
loading....
Jane, I think you’re absolutely right about financial discipline. If you don’t have the 20%, it probably means you don’t have the financial security/stability/discipline to own the house.
Troy, it is a blanket statement, and I’m sure there are situations where putting less down may make sense. But those are rare, so it’s a good rule of thumb.
Peter, interest rates will not stay low forever. Your math is right, but your reasoning is off. Locking in a low rate now simply means that you will see your equity vanish when rates go up, which they inevitably will, especially if you put down less than 20%. With 20% down, you have more of a cushion should prices drop.
loading....
I agree. Of all the hundreds of people I know who bought their first house, it’s worked out for nearly all of them. Maybe a handful of them had 20% to put down. And many of those got inheritances or help from family to get that 20%. In only a few instances was that 20% the result of years of scrimping and saving.
Had we tried to have 20% for a downpayment, we wouldn’t be living in our current home. We probably wouldn’t be in as nice a neighborhood. And our taxes would almost certainly be doubled. We were two handy people who bought a home when we could get one cheaper than rent with only 5% down. Yet 17 years later our home is double its original size and we easily own 75% of it (bank owns 25% ish).
That 20% down is a number thrown around all the time, and it’s a good rule of thumb as a bare minimum for move up style homes. But for a basic house or condo in most parts of the country? I think it’s excessive.
loading....
15 months left on my mortgage
One of the best things about owning vs renting in my opinion is that you have effectively locked in the rent rate (that will increase over time). Yes property taxes and insurance will go up, but a 3% increase on 10% of the cost each year is better then a 3% increase on 100% of the cost. Gives you much more predictability if you are going for FI as well.
I do agree though that technically you are likely to make more money by keeping it invested vs prepaying on a 3-4% loan. I might consider it in the future if I move by using sale of house to purchase rental properties outright and then have loan on main residence as it would be much easier to finance that way. I think as long as I had at least one paid off dwelling that I could move into reasonably quickly (couple months) as a fall back I would be comfortable.
loading....
Yay to getting rid of your PMI! That kind of research and self-advocacy can get tiring and complex, but it’s worth it. And you must feel so relieved and proud of yourself. You are that much closer to paying off your mortgage and achieving financial independence.
loading....
After crawling out of a dark debt hole myself I had yet to get my mortgage in order. I had 3 mortgages on my home, with 2 of them being sold off over the years – so it was a nasty mess to get it all straighted out. I was fortunate enough to refinance, (after paying mortgages at 14.5%, 10.75% and 10.5%, I am comfortable at a manageable 4.5%. I had to learn to declutter and organize home entire life…I had excellant help with a free ebook about getting your life in order. http://www.success123.info.com
loading....
I hate PMI. I ReFi’d and am now putting more on PMI than I was, but my rate change was significant enough to justify the change, and allow me to put more on principal each month. I do agree that PMI allowed me to get into my home, but I see it as a necessary evil, not something i should enjoy because it helped me get into a home. I have just as much a right to hate it as I do insurance, though insurance “helps” me drive my car legally.
loading....
I am in a simmiliar situation, except my house has lost about 10% value since I bought it in June2009. I have paid down about 15% on my loan, but it does not look like I will be able to ditch my PMI anytime soon because a refinance would require an appraisal. I will just keep making extra payments and try to hit the 22% of my original loan value in order to take PMI off. If I were to do it all over again, I would save a 20% down payment on a cheaper starter home.
loading....
Awesome post as usual, Holly! Thanks for relating your story of how you hit a financial obstacle and found a way to circumvent it. PMI sure can be tricky, and in the excitement of buying a home, it can seem like a good idea to take it on. Even the most detail-oriented of us miss something every now and then — and boy do we hate when that happens! — but it’s encouraging to see you persevere through the challenge.
loading....
And another thing! We only have 2 years left on a loan but when we had a hurricane about 5 years ago in Houston, my highrise condo was damaged. I wanted to replace the wood floors with tile but the mortgage company said no. The said they owned the house and they would decide what flooring would go back in the house.
So you really under the mortgage company’s thumb until it’s paid off.
loading....
seriously????
I thought they didn’t take ownership until and unless you foreclosed. They’re getting nastier, aren’t they???
loading....
OMG, I misread the part about Amerisave at first and instead saw “Amerislave”. After laughing at my error, I realized what a Freudian slip that really was. We’re indeed a nation enslaved by our debt, and learning from our past mistakes. That we’re reading, contributing, and commenting on a blog such as this means we’re at least on the right track.
loading....
There’s a proverb that says, “The borrower is a slave to the lender.” I think there’s a good bit of truth in that, as we can all attest whenever one of our lenders makes us jump through hoops.
I’m glad you left your original lender, by the way. I don’t have any experience with the company, but I found the way they behaved in your story to be a little bit unethical and am glad you didn’t decide to stick it out with them.
loading....
Has anyone tried Snowball technique? I m following it and started paying my lowest debt first. can anyone please guide further.
loading....
Adrian,
I’m snowballing $177,650 in 3 mortgages (rental houses) to get them paid off in 3.5 years. It’s something I’m blogging about. I can’t wait to get there in 2016!
loading....
Yes, debts are major hassle in anyone’s life. It seems that the money you’re working for is solely just for the debts you have. Debts also constitute a minor problem in your psychological aspect because you tend to overly think of these. This is just based on my personal experience. But anyway, I’m glad that you are able to regain and bring back what you have. Very nice post and thank you so much for sharing.
loading....
Everyone should pay attention to #62. If you get PMI with FHA loan, they DO NOT ALLOW YOU TO CANCEL once you hit 78% anymore — it lasts the ENTIRE 30 years (unless you refi).
http://themortgagereports.com/12183/fha-in-2013-new-fha-mortgage-insurance-premiums-new-mip-cancelation-policy
loading....
#87 Adam. No You’re not stuck with MIP for 30 years with FHA. It’s 5 years, regardless of principal.
loading....
But this is only for new FHA loans, not applicable to existing ones.
loading....
I did my homework before buying a house, so I put down 20% to avoid the $100 PMI. However, we built our budget with the PMI cost built into it, so we use that money to pay extra on the house every year. It’s not much, but every little bit helps!
loading....
What an interesting story. I have always wondered what would happen when I met the magical no PMI threshold on our current mortgage, now I know. It sounds like a major headache and I’m definitely not looking forward to it!
loading....
i’m not familiar with the homeowners protection act, but i am familiar with games that mortgage loan servicers play, at the expense of borrowers and often of investors. it sounds to me like metlife may have violated the law by imposing requirements that the law does not permit. while you made the best of the situation, you did end up refinancing at a higher interest rate than you would have paid if metlife cancelled the PMI, and you ought to be legally entitled to that amount, if not double or triple that amount. i would recommend filing a complaint with the consumer financial protection bureau in this case, and in any case where you think a mortgage servicer may have improperly serviced your loan: http://www.consumerfinance.gov/complaint/
loading....
Holly,
Thanks for the post, all of the details, and pointing out pitfalls to avoid. There were a few points which didn’t make sense to me, so I figured I’d ask you for clarification.
1. The whole point of the Homeowners Protection Act is for lenders to discountinue PMI upon borrower’s request once the loan to value ratio (LTV) reaches 80%, or *automatically* once LTV reaches 78%. For borrower requested termination, the law has a provision for the lender requiring the borrower to have established a good payment history, but 12 months of on-time payments is sufficient for that. The good payment history provision is not available in the automatic termination case. Further, the LTV calculation is based on the *original* value, which is the lesser of the sale price or the appraisal done at the time of the loan. There is no need for a new appraisal. All of this applies to conventional fixed-rate mortgages. Do you know if there were any other factors in play in your case?
2. When you decided to refinance, did you consider that you were essentially extending your loan to a new 15-year period? Saying that you were trading one mortgage for another equivalent mortgage isn’t quite the case, even if the rate and terms were the same.
For other readers, please keep the above in mind. It’d be nice if it went without saying, but all of the above is a general commentary and not specific advice. For your individual circumstances, please consult with an expert!
loading....
I don’t mind answering at all!
1. Metlife, my old lender, did require an appraisal in order to prove that my home hadn’t dropped in value. According to the Homeowner’s Protection Act, I shouldn’t have had to get an appraisal. However, Metlife had their own requirement that I had to get an appraisal in order to drop PMI. I agree that 12 months of payment history should be sufficient, but Metlife feels differently. Metlife required that I have 24 months of payment history on my new loan before I could request that private mortgage insurance be removed.
2. Yes, of course I know that I extended my loan to another 15 year period. However, I am prepaying my mortgage aggressively so the term of the loan wasn’t extremely important to me.
loading....
The point I was trying to make above, and what I think Samir is getting at, is that (unless I am mistaken about HOPA) Metlife does not have the right to impose its own requirements on top of the HOPA rules. By doing so, it broke the law, and it seems like you suffered financial harm as a result. Getting your money back could be as simple as sitting down with a consumer attorney for an hour and having him or her write a demand letter under your state’s unfair and deceptive acts and practices law.
loading....
I don’t disagree with you. However, I didn’t really suffer any financial harm aside from paying for an appraisal and the $15 I paid Amerisave to pull my credit. And since I was paying 3.25% on my old mortgage as well, I won’t have to pay any additional interest on top of what I would have paid with Metlife.
So while I agree with you that Metlife handles PMI unethically, I would likely pay more for a lawyer than I would gain by making any demands on them. On top of that, Metlife couldn’t care less about the Homeowner’s Protection Act. I read parts of it word for word to at least three different people at Metlife and all they would do is reiterate their own PMI cancellation policy. They don’t care.
loading....
Holly,
To the extent that MetLife sent you written information, and confirmed their PMI policy in 3 different instances, one would assume this to be their Standard Operating Procedure (SOP). If this is indeed their SOP, then this applies to not just you, but all other mortgagors in the same situation as you as well, making this a potential class action situation. Also, your out of pocket investment will likely only be in the form of time; any lawyer would offer you a consultation to assess the situation gratis, in the hopes of collecting litigation fees from MetLife.
My 2c.
loading....
Neil,
Yes, we were getting to the same point, though likely didn’t read each others comment due to the lag between us posting a comment, and it being approved by a moderator.
To be clear, while I’m not a lawyer and therefore not qualified to interpret the law or give legal advice, my conclusion from reading the HOPA suggests that MetLife engaged in the very behavior that the HOPA aims to prevent – thus being in violation. Caveat: Is there some protected state law in the state whose laws govern Holly’s mortgage, that permits MetLife’s behavior?
loading....
Holly- Cannot thank you enough for sharing your story! We are pondering buying and I never really realized that PMI was something you could get “stuck” in, congrats for finding a savvy solution out of it. I see the value in having it if you need it, but after reading this we’ll be definitely look into alternatives, if we actually need it.
I have a question for you, or anyone else who may have ideas.
Brief scenario: (using easy numbers)
Couple has 20k to put down on 100k house with 1 bath.
Would the money be better spent, adding a second bath (and paying PMI for a couple of years until you can get refinanced) or just dropping it down on the mortgage. I know there are so many variables to consider. But just throwing that out there.
In my area, one bath single family homes range from 180k-250k,and I have heard of people adding a bath for about 10-15k (seems worth it.) Moving farther out is not an option since have chosen to be a one car family, and need access to public transportation, which in the long run is much cheaper than another car and insurance, and when it’s nice out, I always bike into the city anyhow.
We don’t make a lot of money (very little compared to many judging by some of these comments), so re-saving enough to add a bath would take a while. We had even pondered taking a roommate for the first couple of years to recoup, which obviously would not work with one bathroom.
So basically, use the saved down payment to add a bath and pay PMI, or put the money down on the loan?
loading....
Without knowing all the details, it’s hard to give advice. Still, I would be tempted to put down 20% on my home and save for the bathroom! Great job on saving so much for a down payment~
loading....
It would depend on why you are wanting to add on another bathroom as to which would be better. For example, if your family size means you need a second bathroom now, but are looking at one bathroom homes because they are cheaper, then it makes sense to add the second bathroom. But if you’re just adding the second bathroom to increase the value of your home, then wait. After all, the value of your home really only matters when you’re trying to sell it, and who knows that the market will be down the road.
Also, keep in mind that an addition only adds value if it’s done well. Lots of people were adding onto their homes to increase the value during the bubble. Some of the additions were shoddy, or disrupted the “flow” of the house. Like all the houses I’ve seen where back patios were turned into bathrooms. Sure, two bathroom homes sell for more than one. But fewer people are likely to buy a house with a bathroom in a weird/inconvenient place.
loading....
I just couldn’t bring myself to do something that felt so frivolous as adding another bathroom when I was in so much debt. I don’t even celebrate holidays or birthdays anymore, I’m so concerned about saving the money to put toward the debt that I couldn’t look at myself if I had another bathroom so who needs a mirror?
loading....
Good work indeed. I would definitely advise dealing with the debt in a manageable and structured way. You will be so glad that you did when in retirement to not have your hard earned savings eaten into.
loading....