February Mortgage Update: Mortgage misconceptions or why you should not get your financial advice from the MMM forum

Last month (January):
Balance:$15,645.52
Years left: 1.166667
P =$1,147.93, I =$66.47, Escrow =$809.48

This month (February):
Balance:$14,493.05
Years left: 1.083333333
P =$1,152.47, I =$61.93, Escrow =$809.48

Amount saved from prepayment:  $0

Because of my addictive personality, I’m not allowed to join any forums.  That doesn’t mean though that I don’t occasionally read fora even though I can’t participate.  Occasionally I have to say something, and since I’m not allowed to join, the something gets to spill over onto the blog.

In this case the forum in question is Mr. Money Moustache’s, and the “someone is wrong” thing is a few misconceptions about mortgages.  I know we’ve written about them before, but they obviously bear repeating!

  1. Mortgages work differently than student loans or credit card debt because they keep the payment the same each month and just remove months off the end with pre-payments.  That means that payments early in your mortgage are worth more than payments later in your mortgage because the mortgage, unlike other investments, doesn’t reamortize each month.  That means the amount you’re saving from pre-paying is different depending at what point you’re at in the mortgage.  You can see this by looking at an amortization spreadsheet, like this one from GRS.
  2. A common misconception is that you are increasing your risk pre-paying the mortgage because you can’t get the money back in an emergency unless and until you pay the entire thing off (and thus finish your mortgage payments).  That’s not actually true.  If you prepay your mortgage, you can, in an emergency, re-cast/re-amortize for a small fee (usually ~$250) and get lower monthly payments by lengthening the amount of time that you continue paying on the mortgage.  For example, right now my mortgage payment is a little over $2000/mo with 1.08333 years left.  If I re-amortized, my payment would be just a little bit more than what I’m paying for escrow, but I would be paying that sum over 13.4 years instead.  (And I have to pay for escrow even if the mortgage is gone!)  All that pre-payment means that in an emergency I can cut my monthly required payment, even though there’s still time left on the mortgage.  You don’t end up with quite as much ready cash so if you’re expecting an emergency you should keep it, but if the emergency is a low-probability event that may happen after years of pre-payment, you can likely recoup enough in lowered payments to get you through for quite a while.  [note that if you have a nonstandard mortgage, the rules may be different — you may not be able to as easily reamortize an adjustable rate mortgage.  Check with your lender if this is a concern. ]

Are there any money misconceptions that bother you?  What do you do when someone is wrong on the internet?  Do you belong to any fora?

January Mortgage Update and what to do when your landlord dies…

Last month (December):
Balance:$16,793.45
Years left: 1.25
P =$1,143.40, I =$71.00, Escrow =$809.48

This month (January):
Balance:$15,645.52
Years left: 1.166667
P =$1,147.93, I =$66.47, Escrow =$809.48

One month’s prepayment savings: $0

Bet that headline caught your attention.

It’s a bit surreal and really sad– zie was only middle-aged (and on the young side of middle age!) and the death was sudden and unexpected. I never met the landlord, but both DH and our friend out here had. It didn’t really hit me that the landlord was a real person until I remembered that zie had a 13 year old child. Somehow knowing that a person was loved and will be missed makes death that much more real.

Nobody actually bothered to tell us (either us or the other half of the duplex) about the death. We found out when we asked our neighbors if their rent check had been cashed for the month because ours hadn’t. We also hadn’t gotten responses about a couple of repairs we’d requested. Our neighbors had direct deposit set up so they hadn’t had a problem, but they googled the landlord and found the obituary and memorial service and told us. Then emailed the landlord’s partner with condolences.

Fortunately, Paradise is in a state that protects tenants more than landlords, which means that once the mess of who actually owns the building is figured out (not a lot of middle-aged people are thinking about wills, and this landlord wasn’t the most organized person), they can’t kick us out to sell the place until our lease is up. *Whew.*

According to the internet, we are to write our checks to, “The Estate of XX” instead of to XX until we get official notification otherwise. We should keep copies of the checks we send (because if they don’t get the checks then the new owner can kick us out before the lease is up). But not much else should change for the remainder of our stay.

As for repairs — DH fixed the toilet himself. I don’t know what we’re going to do about the garage door that only opens from the front when it’s warm. (Our kludge is going in the back door and opening it from the inside.) Our neighbors said the landlord was really bad about repairs anyway, but was also really bad at increasing the rent, so they just bought a new dishwasher to replace the one that broke and didn’t mention a thing to the landlord. Hopefully that won’t happen with us because I am not interested in purchasing appliances, even if we can handle toilet innards.

And if you’re ever in the situation in which your landlord dies– check your state laws.  In some states, the new owners can break your lease and kick you out without recompense as soon as ownership changes hands.  Some states will protect you so long as you’re under contract.  Some municipalities may even provide more protection if the new owners aren’t planning on selling or moving in themselves.

Also, even if you’re young, if you have people depending on you, make sure that you have a will.  Sudden and unexpected deaths do happen.

December Mortgage Update: Kitten-destroyed bathroom, during and after

Last month (November):
Balance:$17,936.85
Years left: 1.333333333
P =$1,138.89, I =$75.51, Escrow =$809.48

This month (December):
Balance:$16,793.45
Years left: 1.25
P =$1,143.40, I =$71.00, Escrow =$809.48

One month’s prepayment savings: $0

I realized I haven’t posted about this yet even though it happened ages ago.  I thought I’d taken pictures specifically for this post, but I’m having trouble finding them.  Here’s some kitteny pictures.

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Here you can see the start of damage on the bottom of the cabinet door behind Boy Kitty (who now lives with my sister).

Damage on the top. It's equally bad on the facing, but I can't find any facing pictures.

Damage on the top. It gets worse later.

008

There used to be stuff under the wallpaper that used to be here…

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Here’s some pictures of facing on those drawers.

011

What was that about wallpaper?

One more.

One more.

And after:

032

No more wallpaper! Paint! Cabinet doors replaced (with custom-made identical doors) and repainted!

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I’d tell you how much it cost, but I don’t remember(!)

November mortgage update: Spending has stabilized

Last month (October):
Balance:$19,075.74
Years left: 1.4166666666666667
P =$1,134.40, I =$80.00, Escrow =$809.48

This month (November):
Balance:$17,936.85
Years left: 1.333333333
P =$1,138.89, I =$75.51, Escrow =$809.48

One month’s prepayment savings: $0

Our spending in paradise seems to have stabilized.  That’s good, because remember how I put a big lump sum into checking based on what I thought we’d be spending over and above our income?  Yeah, that’s all gone now.  100% gone.  It did not actually last 11.5 months.  Spending without guilt worked a bit too well.  Whoops!

That’s a little bit misleading– several thousand dollars went to pay for (unexpected) travel that got reimbursed, but to a different account (deposits are going into our Wells Fargo account, not our main credit union account).  So we didn’t really overspend our wad quite as badly as it seems.

Still, I was surprised to see that for the month of October we spent a little bit under what we earned.  The number in our savings account went up instead of down!  It helps that we have a tenant for our regular house now, and it helps that I’m now getting paid again, even if only at half my regular salary.  It helps more that we seem to have settled down with the right amount of furniture and our pantry is relatively full.  We’ve also figured out grocery stores and are not wasting money at the more expensive stores when there are less expensive groceries that are better.

The holidays will probably be pretty expensive, because they usually are.  We’ll have presents to buy and lots of restaurant trips to pay for.   But then February and March will probably be pretty cheap, because they usually are.

It’s a bit deceptive– it feels like we could live in paradise forever when we start saving instead of overspending.  But that’s only true with job security and high salaries.  If I left my job, we would lose job security, and they’re not going to pay me to not teach for more than one year every five years or so.  And there’s no guarantee rents won’t increase beyond what we could pay and without job security or a lot more savings, buying a house would be extremely risky.  So we’ll be returning home at the end of the year, where we can save and save and save… but never enough to quit and move out here.  I suppose that’s a problem with paradises– surrounded by beautiful slender people one feels fat, and surrounded by the wealthy one feels poor.

Help us decide our future financial paths: A guest post

#2 is on a two-week honeymoon in Italy so we’ve solicited guest posts from readers and will be running them along with random kitten pictures and hopefully(!) food pics from Italy.

Anandar is kicking us off with a money Monday question about long-term financial planing.  Help her think through her options!

*****************************************************************

Anandar writes:

For the first time in a loooong time, we have what feel like real choices in our financial life, and so I took the opportunity to write up a guest post in hoping of thinking things through (and getting feedback if you feel like commenting!).  My spouse and I are both professionals around age 40.  In our 20s, we were in grad school and/or making peanuts.  In our 30s, we were still (!) in grad school, and generally felt urgent about working to pay off the school loans/get established in our careers while paying daycare bills/afford a downpayment in our crazy-high cost-of-living area.  Now, we own a house, just paid off law school loans, our youngest is starting public kindergarten, and we generally feel less strapped.

Additional background:  We both have the sort of jobs (teacher and legal aid lawyer) that are meaningful but also very time consuming and stressful for conscientious types.   We live in a very high cost of living area, and while our fixed expenses are lower than many people of similar age and socioeconomic status—we are debt free except for an affordable mortgage, with no expensive habits–the whole working-parent-modern-life thing leaves us susceptible to throwing money at problems and “treating” ourselves in ways that we suspect we wouldn’t if we worked less.  While I wouldn’t say we live in Paradise, it is definitely a place where spending a lot of money can be fun, interesting and/or delicious.  We’re not interested in easing our finances by moving to a cheaper area, because we don’t want to reboot our community from scratch.  Our savings are on track for retirement at a typical age (we’re steady savers when working but also spend many years in grad school, including a spare PhD, not contributing to IRAs or 401(k)s).  Our savings for kids’ college are relatively modest, but we are taking a “we’ll cross that bridge when we come to it” and “you can borrow for college but not retirement” approach (our privileged kids’ grandparents have also started 529 plans).

Here are our four options for the future, ranked from least to most expensive, and I’d love to hear readers’ thoughts on how you’d evaluate them:

1)      Save up for a sabbatical year of living in another country with kids (the teacher could do this easily; the lawyer would probably have to quit current job).  This is on our “bucket list” of things to do with our children before they old enough to prefer international adventures sans parents.

2)     Save up for major house renovations to make our small home more liveable long term, including separate rooms for each child; a second bathroom; a real guest bedroom for visiting grandparents (who may in the far future want to live with us, so heck, let’s call it an in-law unit); a deck for eating al fresco.

3)    Same as #2, except borrow the money in order to enjoy the benefits of renovation much sooner, while locking ourselves in to higher fixed monthly expenses due to debt.

4)    Save like crazy in order to achieve financial independence (FI) before standard retirement ages.  Neither of us has any desire to stop working entirely, but working on a very part-time or volunteer basis would allow for more flexibility and creativity in our professional and personal lives.  Once we hit FI, we could dramatically increase our charitable donations, which we would really like to do.  I am not sure exactly how long this would take, because I am not sure how frugal we can really be and still preserve our equilibrium.

I can already hear you all saying:  since all of these options cost money, and you seem not to know what you want, why not just save as much as you can and decide later!  And for goodness sakes, these options aren’t all mutually exclusive—if you were financially independent, you could drag the kids on an international sabbatical every year!

There are a several reasons why I’d prefer to have a plan.  First, we are thinker-aheaders (if one were taking a deficit approach, we’d have anxiety issues).  Second, there are practical differences in how we would be spending our scarce free time today depending on which option is our top priority for the future (language learning! home cooking all meals!).  Third, to my mind, these options involve different mentalities with respect to our jobs and our finances, as well as our underlying value sets.  Trying to achieve FI early requires a substantial commitment to frugality.  Saving or borrowing money for home renovations entails a certain amount of doubling down on our paid work, while planning for a sabbatical involves thinking about detaching from our jobs.  And so forth.

So, thoughtful readers, how would you prioritize these options in our circumstances?  What additional questions would you ask yourself? 

October Mortgage Update: Fixing up the house = $$

Last month (September):
Balance:$20,210.15
Years left: 1.5
P =$1,129.93, I =$84.47, Escrow =$809.48

This month (October):
Balance:$19,075.74
Years left: 1.4166666666666667
P =$1,134.40, I =$80.00, Escrow =$809.48

One month’s prepayment savings: $0

On top of all the things we needed to do (get things painted) to get things into shape for new tenants, and optional things we didn’t do (replace carpets that are starting to look their age), we also got get hit up with home maintenance things.

While DH was gone on a business trip, I noticed that the mat surrounding the toilet in the guest bathroom was soaked through.  It didn’t smell like cat pee or effluent in any way.  So I removed the mat and waited a day.  The next day the carpet was soaked through.  Upon further examination there is a crack in the tank, so our option of getting the toilets replaced became a necessity for one of the toilets and it wasn’t even the rattier of the two remaining toilets.  That was $600+ for another two wonderful toto toilets plus $80 installation (since we had a bunch of plumbing stuff that needed to get done, we figured we might as well have the plumbers do the installation and not take our time).  Although we love the sani-gloss on the children’s toilet, we didn’t spring extra for the sanigloss on these two because one is the master toilet and the other the guest bedroom toilet, but we did buy an ADA compliant toilet for the guest bathroom.

DH put off having our deck repainted, even though it was rapidly becoming more wood than paint because he wanted to replace a board first and ask his dad for advice on that while he was visiting over Easter.  Well, over Easter his dad said the entire walk-way needed to be replaced and to hire someone to do that.  We tried, but it kept raining, and then when it stopped raining, all of the handymen and companies were booked solid.  So in the end DH had to do it himself while I watched the kids and took care of other moving issues.  He did a great job, even though there were concrete posts involved!  When it came time to paint the deck, DC1 helped which made it go a bit faster than it used to.  So that entire experience ended up being only ~$200 (for wood, paint, cement, and painting paraphernalia) when we had been expecting much more.  We thought we were going to have to pay to dispose of the concrete posts (after several weeks of the city not taking them with our trash), but fortunately they (barely) fit into DH’s trunk and the guy at the concrete disposal place just laughed at what a tiny amount we had brought compared to the industrial waste they normally handle and said no charge.

I suspect the refrigerator is on its last legs, but we didn’t have time to look into replacing that.  I hope it doesn’t die too horribly on our tenants, but if it does, they will get a much nicer refrigerator, since this was the cheapest model available at home depot back when we were grad students.

Oddly, in our rental, DH can’t seem to let go of the homeowners mentality and has been fixing their broken things rather than asking the landlord to say, send in a plumber.  So he’s taken care of a leaky shower and a broken toilet without even mentioning it to the landlord.

What kind of housing maintenance things have you been having to take care of?  What do you call a landlord in for?

September Mortgage Update and Furnishing an Empty Apartment for a Year

This month (August):
Balance:$21,340.08
Years left: 1.583333333
P =$1,125.48, I =$88.93, Escrow =$809.48

This month (September):
Balance:$20,210.15
Years left: 1.5
P =$1,129.93, I =$84.47, Escrow =$809.48

One month’s prepayment savings: $0

In the end we decided to move out here with next to nothing– we filled up the car, sent a few boxes, and DC2 and I each checked a bag and did a carry-on on the plane.

And now our 1200 sq ft 2br apartment is mostly furnished.

How did we get here from there?

1.  We bought a couch, dining room table and chairs, large ottoman, bunk beds (and mattresses), king-size bed (and mattress), kid’s bike, shelves, and a few sundries (plates and bowls, cooler, toaster oven, microwave) from some people who were moving out for 1K.  I’m pretty sure we could have bargained her down given how last minute she was about everything, but 1K was less than we would have spent at IKEA on much cheaper versions of the same stuff, so we’re good.  Even though she was a PITA to deal with and kept going on and on about how she didn’t want to sell us things because they were dented.

2.  IKEA has a lot of very inexpensive stuff.  We bought three small tables (one for the living room, two to use as nightstands), a set of odd silverware (that cost less than the same partial sets of silverware at goodwill– our goodwill sucks), and a few skirt hangers.

3.  The apartment has some built-in shelves and cabinets.

4.  We have some friends who were happy to give us the crappy stuff they bought back in 2000 that they have since replaced with much nicer stuff but hadn’t gotten rid of the crappy stuff even though they never use it.  Yay generous packrat friends who were saving this stuff for just such an opportunity!  Here we got some not great quality pots, pans, bakeware, measuring spoons and cups (the kind where you have to guess the size because they’re so well-loved), and so on.  They have dibs if they want it back at the end of the year, but they’re hoping they won’t.

5.  The same friends are letting us borrow some shelves and a card table they were keeping in their garage because they want to clear out the garage to organize it.  Also they’ll want them back at the end of the year.

6.  We got a card table and chairs at Walmart for $55 that we’re using in the dog-run for outdoor dining.  DH also got a bike for himself at Walmart.

7.  After trying to work in the eat-in kitchen and being defeated by the heat of the sun, DH decided he really needed a desk, so we got one for $60 off a neighborhood list-serve.

8.  Target filled in more kitchen and bathroom odds-and-ends, as well as things like envelopes and printer paper.

9.  Amazon filled in for some bigger items like a printer, extra ink, a bike for me (after waiting too long to buy one locally so all the students have cleared out anything under $300.  If only I’d bought the first time I looked!  Also, what is going on with Forge bikes not actually having any bikes in stock anywhere?)

10.  I ended up getting a laptop as I didn’t realize work wouldn’t come with a computer and my old laptop is giving up the ghost.

11.  Another friend has a piano lying around that the previous house owners left that she said we could have for the year if we pay for moving.  Paying for moving there and back puts it still at less than the cost of renting or buying a new digital piano.  (We really did want to bring our own piano but just couldn’t fit it in the car and it would have cost more to move than to rent one for the year.)

12.  We got some black-out curtains from Kohls (online, clearance).  The place did come with curtains, but the bedroom curtains didn’t block out any light and the living room curtains only covered about half the window, exposing the world to streaking toddlers who don’t want to get dressed in the morning.

13.  (Update)  Scored another set of shelves and very small chest of drawers that someone in the neighborhood left out with a free sign.  Now DC2 can keep hir shirts and pants in separate drawers and I have a place to put hir winter clothing and too big stuff, which means there’s room in the closet for their toys.

We’re doing a lot of “making do”… like, we don’t really need a casserole if we have the knock-off le creuset for some tasks and a mason jar for other tasks.  We don’t need a pyrex 13×9 if we have a metal one.  And so on.  We’re using long flat bowls instead of small plates for a lot of things (the plates we have are enormous).  But it’ll be fine for a year.  Things that aren’t fine we’ve eventually bought (like an ove glove– way better than the towels system we’d been using).

How much did this all cost, I dunno, something between 2K and 3K?  Closer to 3K if you include the bikes.  How does it compare with shipping?  We’re ahead if we don’t ship stuff back at the end of the year, but we’re about even (since we’d have had to buy bikes anyway) if we do a Pod at the end of the year.

How did you furnish your first place/most recent place?

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