Category: Mortgages


How We Paid Off Our Mortgage in Under Ten Years

Filed Under: Debt Reduction, Mortgages
Jan.15, 2010

Guess what? We paid off our mortgage. That means we have now have no debt. Zip. Zero. Zilch. Nada. Nothing. And do you know what? It feels pretty darn good.

Yes, we’re well aware of the mathematical advantages of keeping your mortgage and investing our extra cash, but we decided to pay off the mortgage for a variety of non-mathematical reasons.

Our mortgage story – in the beginning

We got our first mortgage back in June of 2002. Actually, we got two mortgages back in June of 2002. We didn’t have enough cash on hand to put 20% down, and we wanted to avoid PMI, so we went with an 80/10/10 when we bought our first house.

Our primary mortgage was a 30 year fixed rate around 6.5%, whereas our second had a rate around 8% and was amortized over 30 years, but there was a balloon payment due after 10 years if we still had it.

Anyway, not long after closing on our house, we ended up killing off the second mortgage in favor of a HELOC with a significantly lower rate. Over time, we rebuilt our savings and eventually plugged it into our HELOC to kill of the balance.

Nowadays, I probably wouldn’t recommend this strategy… We essentially rolled our emergency fund into the HELOC to save on interest. It worked well, but the credit markets are now much dicier than they used to be, and there’s always the risk that your HELOC might get shut down.

Anyway, we ultimately rebuilt our savings without ever having to tap the HELOC, and thus all that was left was our primary mortgage. Throughout this time, we were also consistently paying at least a little extra toward principal.

At the same time, mortgage rates had been falling and we decided to refinance to a lower rate. Once again, we opted for a 30 year loan, but our rate dropped into the mid 5% range. The breakeven period was about a year, so it seemed like a no-brainer at the time. We ended up keeping that mortgage for around two years, so we ultimately came out ahead.

Our mortgage story – movin’ on up

In 2006, we ended up moving to another state. We made a tidy profit on our first house when we sold and… Though we ended up moving to a larger, more expensive home, we were able to put down 50% this time around. Unfortunately, rates had drifted back up at this point, so we wound up with a rate a bit over 6%.

As before, we continued making extra principal payments every month, so the balance was spiraling downward. About 18 months later, rates dropped dramatically and we decided to refinance once again. This time, however, we went with a 15 year fixed rate mortgage at a bit under 5%.

This time around, we had minimal closing costs. Thus, even though we ended up paying the whole thing off about 18 months later, we still came out ahead.

Our mortgage story – paying it off

Okay, as I noted above, we’d been consistently making extra principal payments. Over time, these prepayments got more and more aggressive, so our balance was dropping fast. At the same time, we had also been saving and investing aggressively, fueled not only by my day job, but also by my online endeavors.

Fast forward to this past December. After giving it a lot of thought, my wife and I decided to request a payoff statement from our lender and to make a lump sum payment to payoff our mortgage early. After transferring some money around, I headed over to the bank to wire the funds to our lender.

And that’s all she wrote… The funds arrived later in the day, and our mortgage account was updated the next day to reflect our zero balance. From start to finish, this entire process took just about 7.5 years. This isn’t to say that you should pay off your mortgage early, but rather to provide evidence that it can be done if you decide that it’s the right course of action for you.

P.S. Hey Matt, our debt-to-income ratio is zero. :-)

Follow me on Twitter!

---
Related Articles at fivecentnickel.com:



read more

How to Choose a Mortgage Lender

Filed Under: Mortgages
Jan.08, 2010

I recently received an e-mail from a reader who was wondering how to select a mortgage lender. More specifically, he wanted to know:

“If bank A offers me a certain APR with roughly $3,000 in closing costs, while bank B offers me a lower APR with roughly $3,000 in closing costs, but bank B is a no name bank, which do I pick? In the end, a contract is a contract, right? If I sign with ‘Joe Blow Bank’ and they loan me X dollars at the lower APR, should I go with them? Or should I remember what my mom told me? If it sounds too good to be true, then it probably is.”

Personally, the only factors that I really pay attention to are the mortgage interest rate, lender’s fees, and closing costs. We’ve generally worked through a mortgage broker, and haven’t ever thought about who would ultimately wind up underwriting our loan.

In fact, it’s very common for mortgages to change hands within a few months of origination. As such, it’s not like you really get to choose who will end up servicing your loan, anyway.

Just be 100% sure that you’re comparing apples with apples… For example, adjustable rate mortgages (ARMs) typically have low initial rates that will move upward after three, five, or seven years. In the case of fixed rate mortgages, shorter term loans typically have lower rates than longer term loans (e.g., 15 year rates = 30 year rates).

Assuming that you’re being offered truly equivalent products, I’d focus on the financial details rather than sweating the name of the bank. Of course, you’ll want to be sure that your prospective lenders are legitimate outfits, so go ahead an check them out with the Better Business Bureau, but… Don’t let name recognition (or lack thereof) push you into a more costly mortgage.

If you have anything to add, please share your thoughts in the comments.

Follow me on Twitter!

---
Related Articles at fivecentnickel.com:



read more

Effect of FICO Credit Scores on Loan Interest Rates

Filed Under: Credit Cards, Mortgages
Dec.30, 2009

The other night, I was poking around over on MyFICO. They have a 30 day free trial that provides you with access to both your credit report and your FICO credit score. The free credit report isn’t a big deal, as you can get that free no matter what. The credit score, on the other hand, is a bigger deal, as you normally have to pay for this info.

Aside from learning that I currently have a 781 FICO credit score, I ran across some interesting numbers about the effect of your credit score on interest rates. What follows is a breakdown of the numbers for three different loan types.

30 year fixed rate mortgage

These are the numbers for a 30 year fixed rate mortgage. As you can see, the numbers increase by about an eighth of a point at each level while you’re still in “prime” territory.

If you want the best mortgage rates, you’ll need a credit score of more than 760. The other thing you’ll notice is that the rates skyrocket once you drop below 660, which pushes you into subprime territory.

Credit Score Interest Rate
760-850 4.785%
700-759 5.007%
680-699 5.184%
660-679 5.398%
640-659 5.828%
620-639 6.374%

15 year home equity loan

If you’re already in a house and are looking to borrow against your equity for home improvements, you might be interested in home equity loan rates. In this case, there’s a big jump once you dip below 720, and it only gets worse from there.

Credit Score Interest Rate
740-850 7.770%
720-739 8.070%
700-719 8.570%
670-699 9.345%
640-669 10.845%
620-639 12.095%

48 month auto loan

Finally, we have the 48 month auto loan. While I wouldn’t generally recommend borrowing money to buy a car, many people do this, so I thought it would be worth covering. In the case of car loans, the uptick in rates is significantly more pronounced as your credit score drops.

Credit Score Interest Rate
720-850 5.746%
690-719 7.420%
660-689 9.459%
620-659 13.244%
590-619 18.063%
500-589 18.573%

Keep in mind that the above rates are just a snapshot from one point in time. While the overall rates will change, the numbers above will give you an idea of things will vary across.

It’s also worth noting that the credit score ranges differ for the three different types of loans. For example, the top range for a 30 year mortgage is 760-850 whereas the top range for a 15 home equity loan is 740-850. This is how the data were presented, so that’s how I’m giving them to you.

If you’re curious about where you stand in terms of you credit score, you might consider signing up for the MyFICO 30 day trial. Just be sure to cancel before your thirty days are up if you’re not interested in continuing (and paying for) the service.

Follow me on Twitter!

---
Related Articles at fivecentnickel.com:



read more
Powered by WordPress and Motion by 85ideas.