The hassle of being in debt

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.

More about...Debt, Home & Garden

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The Norwegian Girl
The Norwegian Girl
7 years ago

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.

Mortgage Mutilator @ Mutilate The Mortgage
Mortgage Mutilator @ Mutilate The Mortgage
7 years ago

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.

Mortgage Mutilator @ Mutilate The Mortgage
Mortgage Mutilator @ Mutilate The Mortgage
7 years ago

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.

nicoleandmaggie
nicoleandmaggie
7 years ago

good for you! And a great warning about PMI.

Jane
Jane
7 years ago

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… Read more »

Ely
Ely
7 years ago
Reply to  Jane

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. :-/

Peter
Peter
7 years ago
Reply to  Jane

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.

Prabhakar M N (Satan Infernous)
Prabhakar M N (Satan Infernous)
7 years ago

Being in debt is difficult

Siegfried
Siegfried
7 years ago

There is no way I would get a mortgage… no way! I am too nervous – I would be worrying constantly “what if”

tas
tas
7 years ago
Reply to  Siegfried

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…

Elizabeth
Elizabeth
7 years ago
Reply to  tas

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.

Ely
Ely
7 years ago
Reply to  Elizabeth

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.

Elizabeth
Elizabeth
7 years ago
Reply to  Elizabeth

@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!

Jane
Jane
7 years ago
Reply to  Elizabeth

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… Read more »

Sheryl
Sheryl
7 years ago
Reply to  Elizabeth

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.

MoneyStreetSmart
MoneyStreetSmart
7 years ago
Reply to  Elizabeth

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.

Jennifer B
Jennifer B
7 years ago

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… Read more »

Holly@ClubThrifty
7 years ago
Reply to  Jennifer B

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… Read more »

Jennifer B
Jennifer B
7 years ago

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… Read more »

Holly@ClubThrifty
7 years ago
Reply to  Jennifer B

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.… Read more »

Diane
Diane
7 years ago
Reply to  Jennifer B

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… Read more »

BC
BC
7 years ago
Reply to  Jennifer B

Diane, Please do get started on 15 versus 30 year mortgages! Would love to hear your take on those.

Jane
Jane
7 years ago
Reply to  Jennifer B

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… Read more »

Diane
Diane
7 years ago
Reply to  Jennifer B

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.

Curtis@PayOffMyRentals
7 years ago
Reply to  Jennifer B

“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.

Diane
Diane
7 years ago
Reply to  Jennifer B

Hi Curtis – The key word is AFFORD, hence the caps.

Ms. W @ GrowingHerWorth.com
Ms. W @ GrowingHerWorth.com
7 years ago

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!

Michelle
Michelle
7 years ago

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.

Random Hangers
Random Hangers
7 years ago

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!

Debi
Debi
7 years ago

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… Read more »

MelodyO
MelodyO
7 years ago
Reply to  Debi

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.

Matt Becker
Matt Becker
7 years ago

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!

B
B
7 years ago

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.

Nicole
Nicole
7 years ago

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.

Jen
Jen
7 years ago
Reply to  Nicole

” 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.… Read more »

Phoebe@allyouneedisenough
7 years ago

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).

Sam
Sam
7 years ago

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… Read more »

Rob
Rob
7 years ago

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.

Sally
Sally
7 years ago

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!

Babs
Babs
7 years ago

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… Read more »

Annie
Annie
7 years ago

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!

Laura
Laura
7 years ago
Reply to  Annie

I’m not aware of this. Would you elaborate? Thanks.

Megan
Megan
7 years ago
Reply to  Laura

This is news to me, too. Can you please elaborate?

Annie
Annie
7 years ago
Reply to  Megan

Explanation now in this thread, in response to the commenter before you. 🙂

KSR
KSR
7 years ago
Reply to  Laura

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… Read more »

KSR
KSR
7 years ago
Reply to  KSR

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.

Holly@ClubThrifty
7 years ago
Reply to  KSR

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 =/

Annie
Annie
7 years ago
Reply to  Laura

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.

Samantha
Samantha
7 years ago
Reply to  Annie

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!

Tyler Karaszewski
Tyler Karaszewski
7 years ago

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.

Laura
Laura
7 years ago

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… Read more »

Troy
Troy
7 years ago
Reply to  Laura

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… Read more »

Laura
Laura
7 years ago
Reply to  Troy

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… Read more »

Troy
Troy
7 years ago
Reply to  Laura

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… Read more »

Laura
Laura
7 years ago
Reply to  Laura

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… Read more »

Troy
Troy
7 years ago
Reply to  Laura

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… Read more »

Troy
Troy
7 years ago
Reply to  Laura

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!

Sara
Sara
7 years ago
Reply to  Laura

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… Read more »

Ramblin\' Ma\'am
Ramblin\' Ma\'am
7 years ago

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!)

Elizabeth
Elizabeth
7 years ago

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… Read more »

Ramblin\' Ma\'am
Ramblin\' Ma\'am
7 years ago
Reply to  Elizabeth

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.)

Kaytee
Kaytee
7 years ago

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.

M
M
7 years ago
Reply to  Elizabeth

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.

imelda
imelda
7 years ago
Reply to  M

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?

Laura
Laura
7 years ago

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… Read more »

Mom of five
Mom of five
7 years ago

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… Read more »

Vanessa
Vanessa
7 years ago

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… Read more »

Troy
Troy
7 years ago

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… Read more »

Marsha
Marsha
7 years ago
Reply to  Troy

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.

Troy
Troy
7 years ago
Reply to  Marsha

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… Read more »

Erica
Erica
7 years ago

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.

Ashley
Ashley
7 years ago

I enjoyed your article, Holly!

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago

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.

Troy
Troy
7 years ago

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.

Peter
Peter
7 years ago

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… Read more »

Jane
Jane
7 years ago
Reply to  Peter

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… Read more »

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago
Reply to  Jane

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… Read more »

Mom of five
Mom of five
7 years ago
Reply to  Peter

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… Read more »

Lucas
Lucas
7 years ago

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.… Read more »

CgK
CgK
7 years ago

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.

Angela Wing
Angela Wing
7 years ago

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

Jacob @ iHeartBudgets
Jacob @ iHeartBudgets
7 years ago

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.

El Guapo
El Guapo
7 years ago

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.

LeRainDrop
LeRainDrop
7 years ago

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.

bobj
bobj
7 years ago

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.

Ely
Ely
7 years ago
Reply to  bobj

seriously????

I thought they didn’t take ownership until and unless you foreclosed. They’re getting nastier, aren’t they???

joan
joan
7 years ago

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. 🙂

Meika
Meika
7 years ago

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.

Adnan
Adnan
7 years ago

Has anyone tried Snowball technique? I m following it and started paying my lowest debt first. can anyone please guide further.

Curtis@PayOffMyRentals
7 years ago
Reply to  Adnan

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!

Lana James
Lana James
7 years ago

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.

Adam
Adam
7 years ago

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

ednasmiley
ednasmiley
7 years ago
Reply to  Adam

#87 Adam. No You’re not stuck with MIP for 30 years with FHA. It’s 5 years, regardless of principal.

Krishanu
Krishanu
7 years ago
Reply to  Adam

But this is only for new FHA loans, not applicable to existing ones.

Bryan
Bryan
7 years ago

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!

Nick @ ayoungpro.com
Nick @ ayoungpro.com
7 years ago

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!

Neil
Neil
7 years ago

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… Read more »

Samir
Samir
7 years ago

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… Read more »

Neil
Neil
7 years ago
Reply to  Holly Johnson

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.

Samir
Samir
7 years ago
Reply to  Holly Johnson

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.

Samir
Samir
7 years ago
Reply to  Neil

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?

Babyb
Babyb
7 years ago

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… Read more »

Holly@ClubThrifty
7 years ago
Reply to  Babyb

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~

Ms.W @ GrowingHerWorth
Ms.W @ GrowingHerWorth
7 years ago
Reply to  Babyb

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… Read more »

@pfinMario
@pfinMario
7 years ago

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? 🙂

Simon Halls
Simon Halls
7 years ago

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.

Funda
Funda
6 years ago

Very great advice especially for those who are not financially literate yet. Learning how to quickly pay off personal loans, business loans, and any other kinds of loan can help you save money and reduce stress caused by your debts.

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