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.
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.