May mortgage update and would you prepay or increase your monthly payments when the escrow increases?

Last month (April):
Balance:$12,174.40
Years left: 0.91666666667
P =$1,161.61, I =$52.79, Escrow =$809.48

This month (May):
Balance:$11,008.18
Years left: 0.833333333
P =$1,166.21, I =$48.19, Escrow =$812.79

Amount saved from prepayment:  $0

Our escrow went up as it does almost every year.  When this happens, Wells Fargo gives us the option to pay the difference upfront to keep our payments the same or smaller.

Used to be when this happened I’d pay the difference so I could prepay more each month when I rounded the number up to a round number when writing the checks.  Also I like paying stuff early so I don’t have to worry about it later when I might have less money than I was expecting.

But we’re not currently doing any prepayment (since Paradise is expensive and I’m at half pay), not even the little rounding up prepayments that we did when we were just starting the mortgage.  It bothers my OCD a little bit not to write a round number on the check, but I’m getting used to it.

And because we’re spending more money than we’re taking in (not counting retirement savings) and because we have less than a year on the mortgage and there’s not even a full year left for the escrow, I decided to let them increase our monthly payment for the second time this year.

(Note also that that $812 or more will be the minimum average monthly cost of home ownership once we’re done with the mortgage not including utilities or repairs– home ownership isn’t free!)

Would you prefer to pay increases upfront or to amortize payment increases?

April mortgage update: Living in a 1200 sq foot 2br/2ba for a year as a family of 4

Last month (March):
Balance:$13,336.01
Years left: 1
P =$1,157.03, I =$57.37, Escrow =$809.48

Last month (April):
Balance:$12,174.40
Years left: 0.91666666667
P =$1,161.61, I =$52.79, Escrow =$809.48

Amount saved from prepayment:  $0

… instead of our usual 3000 sq ft ~5br/3ba.

Honestly, it hasn’t been so bad.  At some point, the kids may need to stop sharing a room or may need more space for their clothes, but not yet.

We use every part of the house instead of just a third of it.  I spend more time in our bedroom hiding out from everyone (DH spends about the same amount of time in our bathroom hiding).  I pretty much only use our bedroom at home for sleep (and activities involving the removal and/or putting on of clothing), even though it is comparatively ginormous.

Having people visit has been difficult.  If it’s my sister visiting, DC1 sleeps on the couch and she sleeps on the top bunk.  If it’s a parent, DC2 sleeps with us and the grandparent sleeps in hir bed.  We cannot accommodate couples unless a pair of people sleeps in the living room.  In our usual home place, visitors get an entire guest bedroom suite to themselves.  But… hardly anybody wants to visit us back home.

As with our graduate school days, it has been difficult to spend money accumulating stuff.  The first question is again not, “how much does this cost?” but “where would we put it?”  Only after we decide there’s room can we think about whether something is worth buying.  (Though DH and DC1 have been testing this proposition with their growing board game collection.)  But since the library system is so great and a short walk away, I don’t need so many books at home.

All in all, it’s been much easier to live here than I had expected.  (1200 sq ft is bigger than our grad school apartments, but there were only two of us then!)

Now, we’re not going to sell our monstrous house and move into a smaller place when we get back.  Why not?  Well, part of the reason it’s so easy to deal with a small space here is because everything is in walking distance.  A big park with playground, restaurants, the library.  And the weather is generally nice.  We don’t need to spend as much of our free time inside the house.  Back home, there’s really none of that, especially not near smaller houses; home owners associations are much more likely to have amenities like parks and playgrounds.

Another reason is that the neighborhood here is relatively safe and entirely free from college students.  Smaller places back where we usually live are either rural and away from everything, in high crime/bad school areas, and/or surrounded by students.  Home owners associations, though horrible, seem to be a way to get away from students.  We could downsize to probably 2200 sq ft and still be away from college students and coyotes and snakes, but the price differential doesn’t seem worth the hassle.  We can afford what we’ve got (as you can see from our mortgage update!).

And, I can’t lie– it is a bit easier to live in a small place that’s not in the best shape when everybody else is also living in small places that aren’t in the best shape.  Our standards are a lot higher where the housing is cheaper.  We wouldn’t put up with a lot of stuff in the small town that just doesn’t seem like a big deal here in the city.  The same was true when we moved from graduate school– peeling paint and uncovered radiators aren’t a big deal when you’re in an amazing location, but the new rural house has to be perfect and move-in ready.

How small a place are you comfortable living?  Is bigger always better?

March mortgage update: Why we bought a huge house and why we shouldn’t have

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

This month (March):
Balance:$13,336.01 (actually it is 13,336.21 because wells fargo occasionally steals pennies)
Years left: 1
P =$1,157.03, I =$57.37, Escrow =$809.48

Amount saved from prepayment:  $0

Hey, look at that, only one year left!

About 10 years ago we bought a 3000 sq ft house.  Why?

  1.  We had been living in small urban apartments and were dying to have more space.  Our master bathroom is literally the size of our first efficiency.  We had no concept of say, how 2000 sq ft would be.  We only knew small and that large sounded great.
  2. We were sick of moving and didn’t want to move again unless we were leaving the town for new jobs (in which case we wanted to be able to unload the house quickly).
  3. We thought we wanted a 5 br house so that there would be one bedroom for each of us and we’d also each have a study.  (We actually have a 4br plus study.)  We did not realize that we miss each other when we’re working in separate rooms and thus do not need our own studies.  (And DH has plenty of room in one of the walk-in closets to keep his boardgame collection, so he doesn’t need a separate storage room like his father has for hunting equipment.)
  4. We had 55K saved for a downpayment (enabling us to get a 265K house using the 20% down rule plus fees).
  5. I had a salary that would enable us to buy a 300K house (give or take) according to online calculators, which we knew was probably too expensive, but 265K seemed pretty reasonable.
  6. The monthly payment on a 30 year 6.5% mortgage was less than what we were paying in rent in the city.
  7. We told the real estate agent that the most we could afford was 265K, so he had incentive to make the nicest house we saw a little more than 265K.  Then the other real estate agent was informed that we could only afford 265K (I imagine, I’m not actually sure).  So we offered less than that and they countered with 265K and we said ok and didn’t move on to our second choice somewhat smaller 250K house.

3000 sq ft is too much.  It is expensive to air condition and clean and keep the lawn mowed.  We just don’t use about a third of our house because living in nowhere, nobody really visits us now that DC1 is no longer the only grandkid (oddly, we had plenty of visitors on the couch of our small apartments in grad school city!)

If we had to do it again, we would look for something more in the 2200sq ft range.  1200 sq ft, which is what we’re living in right now, is a bit small for the four of us.  If we’d gotten a starter home we probably would have ended up staying in it.  But we didn’t realize.

Why don’t we sell and buy a smaller one now?  Mostly because the amount we would save by cutting out say 800 sq ft doesn’t seem worth it to us with the hassle of moving and transaction costs.  And we do like the neighborhood, although the elementary school zone changed on us and now sucks (we’re hoping DC2 will get into the dual language program if zie doesn’t start K early). It’s also now a seller’s market instead of a buyer’s market so while it would be easy to sell the place, it would be much harder to find a new place than when we first moved out here.

So, the moral:  Just because you can afford a big house doesn’t mean that you should buy one.  More isn’t always better.

How did you decide what size house to buy/rent?  Do you always get the best and biggest that you can afford?

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.

098

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…

010

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!

034

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.

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