Being debt free can be a euphoric feeling that brings on a freer, less complicated lifestyle. Being debt free can be very difficult to achieve completely, especially in this credit heavy world we live in. You want it? You got it-just sign here. Look around your home at all the things you have purchased over the past three years. Flat panel TV, new smart phone, lots of shoes (lots), shiny car and a few sunny weekends in Bermuda. Wow, I bet you really did not need all that stuff and probably now think of some (most) of it as cluttering up your home. Now, look at your home……
 
Part of being debt free is owing zero on your home. A lot of people never think they will be able to and should pay off their mortgage early, but they can. 

There are two schools of thought on having no mortgage:
A. Some people believe that you need to have some debt, have some leverage on the equity of your home and need an income tax write-off from somewhere. 
B. Other people believe that it is best to have the lowest possible overhead for your day-to-day living. This means that if you lost your job tomorrow, you would be able to manage living with very little overhead. Hopefully there is a 6-12 month cushion in the bank account to do this. I am of the second school of living completely debt free including your home.  
 
I am not saying you should buy a house for cash or play the horses and pay it off with the winnings. I am saying that you should include your home in your total assets and include the mortgage in your total liability and payment in your monthly expenses. Paying off a mortgage can be achieved in the same vain as paying off your credit card debt. Just pay a little more each month.
 
From your first monthly payment due on your mortgage, you can begin accelerating the mortgage payoff. By simply making the equivalent of one extra payment of principle and interest each year, you can knock a 30 year mortgage down to 24 years and four months.  This is the same as reducing the interest paid over the 30 year period by a 1/3. Saving a third of your total interest is the same as lowering your effective interest rate by 2%!!  So, by paying a little extra each month, you knock off so much interest it might not even pay to refinance.  (For those math majors and picky-Annies out there, these numbers are approximated.)
 
There are a few ways you can do this:

1.  Divide the monthly principle and interest payment by 12 and add this to each monthly payment 
2. Make a full principle and interest payment once each year the same time (birthday, July 4th, etc) 
3. Make 26 half payments every two weeks
   

Any of these methods will achieve the same result; make one extra payment a year and knock almost 6 years off the loan. I do not recommend signing up for the bi-weekly or bi-monthly or mortgage accelerating programs offered by your lender or third party servicers. There is usually a fee for this, you lose control of the payments if you need to change something and you can do it yourself just as easily.  Part of being debt free is created your own model and having complete control over it!
 
Here is an example:
 
Anne has a 30 year fixed mortgage for $300,000. The interest rate is 6%. If she pays it off per the terms of the loan, she will have a monthly payment of $1,798 and will pay $347,515.44 total interest over the entire life of the loan!  If she simply pays $1,800 dollars extra each year (using any of the 3 methods above) she will pay the loan off in 24 ½ years, with a total lifetime interest of $273,870.

Anne will save a whopping $73,644 on interest. By simply finding an additional $1,800 a year; she can save 40 x that in interest. I say, that is a lot of shoes!!  Why would someone not want to do that?
 
So, you see how easy it can be to have your mortgage into the big picture and include it in your plan of being debt free. This is great when you go to sell the home, lose part of your household income or want to retire early. It might not be good for people who are definitely selling their home within 5 years, never plan on moving or just don’t care about mortgage debt. I always suggest calling the lender and asking them the best way to calculate the accelerated payments and how should you make them. Again, shy away from their offer to put you in a bi-weekly service plan. You can follow the reduction of principle on-line with the lender and trust me this feels good!

This is a guest post from Dale Robyn Siegel; a licensed attorney in New York and owner of Circle Mortgage Group, a boutique mortgage broker in White Plains, New York. She is an adjunct professor at Baruch College as well as NYU Schack Institute of Real Estate. Dale has been speaking to the public and teaching real estate professionals about mortgage finance for the past ten years. You can learn more about The New Rules for Mortgages at http://www.thenewrulesformortgages.com, and you can purchase a copy here: http://www.amazon.com/Rules-Mortgages-Dale-Robyn-Siegel/dp/1592579485 To learn more about this virtual book tour, please visit http://virtualblogtour.blogspot.com/2009/09/new-rules-for-mortgages-by-dale-robyn.html

Image Courtesy: banoootah

I was talking with one of my co-workers the other day about my home refinance. As we were talking, one of our other co-workers overheard the conversation.

This is a new co-worker that transferred from another office a couple of weeks ago so we do not know each other that well. She and her fiancee are in the process of buying their first home and she had a couple of questions about the process. I answered her questions to the best of my knowledge and told her that I'd bought two homes in my lifetime.

They have a good down payment but they are having problems getting a loan because her fiancee has poor credit. I suggested if she can afford the payment on her own, she should get the loan in her name only. She gave me a funny look and said "they won't let me buy a home by myself".

I asked her what she meant and she said if she did that, she would be considered "single" and they would not give her the loan. She has a strong credit score and she is fronting the down payment. I don't know where she got this impression from but I advised her that I am single and I have bought two homes on my own. She was really surprised and said "I thought you were married and had kids since you owned a house."

My other co-worker almost fell out of his chair when she said that. I had to explain to her that yes, single people can buy homes too. As long as you can afford the payment, have good credit and a down payment, pretty much anyone can buy a home.

Like this post? Want to see more? Subscribe to my RSS feed!

After about six weeks of gathering paperwork, submitting paperwork and waiting, waiting, and more waiting, my refinance is finally done!!!

I closed yesterday on my new loan. I bought my house over three years ago using 100% financing through a combination of a first and second, 5 year, interest-only adjustable rate mortgage. The rate on my first mortgage was 6.375% and the rate on my second mortgage was 8%.

For those of you that have been keeping up with the housing crisis, this type of loan is one of the causes of the problem. Some people used this loan to get into a home they couldn't afford in the first place. When the rate adjusted, they couldn't afford the new increased payment and had the house go into foreclosure or were forced to do a short sale.

I chose an interest-only adjustable rate mortgage for a number of reasons:

• I knew what I was getting into. I knew that if I did not pay anything on top of the interest-only payment, my loan balance would never decrease. I reduced the balance of my loan by about $9,000 by making principal payments.
  
• I didn't plan to stay in my home more than 5 years.
  
• All of my closing costs were paid by my builder so I didn't have any out of pocket expenses.
  
• If I changed my mind and decided to stay, I could refinance to a fixed rate mortgage.
  

I decided that I liked my home and I wanted to stay for awhile so I started shopping for a fixed rate mortgage. My rate was not scheduled to reset until 2011; but I didn't want to cut it that close. Besides, mortgage rates are at historically low rates. Since my current mortgage company was not interested in keeping my business, I went with another company.

Yesterday, I closed on my new 30-year fixed rate mortgage. I was able to lock in an interest rate of 4.875% and will save thousands of dollars in interest. Not only that, since my mortgage is now a fixed rate loan, I never have to worry about the payment going up.

Image Courtesy: Wwworks


New here? Subscribe to SingleGuyMoney.

5/29/09 Update: I spoke with the mortgage broker and everything looks good, except the value. Looks like my home appraisal is borderline and will the deciding factor on whether or not I am able to refinance. The mortgage broker plans to review the appraisal with two other appraisers to get their thoughts. Hopefully, I'll know something by the end of this week.

I've debated on whether or not I wanted to refinance for a few months now. Rates are the lowest that they've ever been and I don't think they are going much lower.

I started the process last week with my current lender. I've been with my current lender for over three years with no late payments. Their website said that they offered a streamline refinance which meant there would be no appraisal, no income verification and minimal paperwork.

Apparently, that program is no longer available. I received a call from my current lender advising me that the streamline refinance is no longer available and I would need to "requalify" for the loan.

When I applied for a refinance with a current lender, they pulled my credit. Apparently, based on my credit score, Equifax also sent my information to another lender. The lender called me and explained they could offer me a better rate than my current lender. The company is a direct lender and they their own money which means they can offer lower rates than the big national banks.

I provided all of my information and was pre-approved with the new lender. I was able to lock in a fixed rate of 4.5% for 30 years. I received a Good Faith Estimate from the company and the fees are reasonable.

The only thing standing in the way of the refinance is the home appraisal. I need to have at least 3% equity in order to be able to qualify for an FHA loan. The appraisal was completed this past Friday so I'm waiting to find out the value of my home. I think I have enough equity but the only thing that concerns me is that sales have been slow in my neighborhood and there have been several foreclosures.

I should find out if I will be able to refinance later this week. I'm crossing my fingers hoping that my home will appraise high enough to refinance. I would be going from my current rate of 6.375% to 4.5% which would save me a few hundred dollars a month. I'm pretty comfortable with my current mortgage payment so I would continue to make the same payment each month.

Have you refinanced or attempted to refinance your mortgage lately?

Image courtesy of Notionscapital.com

The rates on a 30 year home loan have recently fallen to record lows; and will possibly fall even further. Sometimes when homeowners hear about big drops in mortgage rates, they rush out to start the process to refinance their loan.

Even though the current rate may be lower than what you are paying on your mortgage right now, it may or may not make sense to refinance your loan. Before you make the decision to refinance your home loan, be sure it makes sense in your specific situation. Run the numbers and be sure you will save money by refinancing your loan.

Some reasons you should consider refinancing:

ARMS. If you are currently in an Adjustable Rate mortgage and your rate will be readjusting soon, you should probably look into refinancing into a fixed rate mortgage. Be sure you will stay in the home long enough to recoup the costs of refinancing. Once you refinance into a fixed rate loan, you no longer have to worry about increases in your interest rate. An increase in your interest rate by a few percentage points can make your monthly mortgage payment no longer affordable.

Monthly Savings. If you are able to lower your rate enough to save a few hundred dollars a month, it's probably a good idea to refinance. Saving an additional $100-200 a month could be a nice addition to your savings account or help you pay off your credit card debt a lot faster.

Low Cost. If you are one of those that pay your mortgage on time every month, your current mortgage lender will probably do what they can to keep you. This should probably be the first place to check when you make the decision to refinance. Most lenders already have a relationship with you so they can streamline the refinance process and save you money. Your current lender may be able to offer you a no-cost or low-cost refinance.

Cash Out. If you want to remodel your home, send a child to college, start a business, etc, you may want to consider refinancing to take cash out. You will probably need significant equity in your home since most lenders these days are scared they will end up holding the bag if you are not able to pay and the home goes into foreclosure. The more equity you have in the home makes it less likely that you will walk away without paying.

Once you've identified that it is a good idea to refinance your mortgage, make sure you have the credit and equity to back it up. Your credit and the amount of equity you have in the property will be an important factor in determining the rate you receive. Consumers with credit scores in the 700s and have more than 20% equity in their homes will have the best chance of getting the best rates.

Subscribe to SingleGuyMoney

Financial Affiliates:
MyFico - Suze Orman Fico Kit (20% off)
Equifax - 3-in-1 Credit Report
InsureMe - Save money on your auto insurance
Quicken Online - Manage your money for free

I received an unusual call from my mortgage company yesterday. They wanted to give me a "friendly reminder" that I had not made my mortgage payment for this month. I've had my mortgage with this company for a little over two years. I've never been "late" on a payment but I do take advantage of the two week grace period every month. Instead of paying on the 1st of the month, I usually wait and schedule an electronic payment to post around the 11th or 12th of the month. Those of you that have a mortgage are probably aware that your mortgage company gives you until the 15th of the month before they consider your payment late. If you make your payment after the 15th of the month, you will usually owe a late fee in addition to your regular payment. Usually, a Iate payment is not reported to the credit bureaus as being late until after you are over 30+ days late. Holding my payment until just before the late payment date allows me to earn a few extra cents in interest on my money.


I was a little upset that they called me about my payment because I've never been late before. I was also ticked because I'd already scheduled the payment last week to post to my account today. I'm pretty sure they are able to see that a payment had already been scheduled. I was upset for a little bit but after thinking about it for awhile, I kinda appreciated the call. I guess with the current rate of foreclosures, they want to make sure they do everything they can to keep another home from being foreclosed on. Actually, it may have been a good idea for them to call just in case I had forgotten to make my payment this month.


Do any of you take advantage of the grace period on your mortgage or do you promptly pay on the 1st?

Image Credit: Dan4th

I got an email today from a company called CircleLending. I read up on the website and it sounds like a pretty good idea. Say you want to owner finance a property and you are not sure how to do it. CircleLending will handle all the details for you as if you were financing thru a mortgage lender. They use all the same Fannie Mae forms.

According to the website, the benefits for sellers are:

• Generate a steady income stream.
• Attracting a larger number of buyers. In this market, you need all the buyers you can get.
• Overcoming valuation problems. House not appraising for your asking price but the seller is willing to pay?

Benefits for buyers using CircleLending are:

• Lower closing costs.
• Obtaining a mortgage when you may have not been able to otherwise.
• Supplement other financing. Bank won't approve 100% and you don't have alot of cash for a downpayment?

The costs seem to be relatively inline with normal closing costs. Let them handle the closing, service the loan and handle the escrow account for $2299. I did notice they charge a $9 monthly fee to handle the monthly payment for you. This service also works for mortgage financing between family members.

Thanks to CleverDude's post Against the grain: Why we chose an interest only mortgage, I decided I would share my deep, dark, secret....I too have an Interest Only Mortgage. I too chose a 5/1 ARM and financed 100% of my home. Before you start throwing rocks at me, here are some of the reasons I took out an Interest Only Mortgage:

• I pay more than the Interest Only payment. I found a good reliable mortgage calculator and determined what the amortized payment would be if I had a fixed loan. I make sure to pay at least that amount of the principal every month. I've had the loan for about a year and a half and I have paid principal each month. If there is a lean month where I can only pay Interest Only, I have that option. So far, that hasn't been a problem.
• I do not plan to live in this house more than 5 years. I made sure there was no prepayment penalty on my loan so I could refinance or sell before the loan resets to a higher interest rate.
• I wanted to keep my cash for other uses. My other debt at the time I bought this home was at a higher interest rate than what I would be paying on my mortgage so I wanted to use that to pay down the high rate debt. I paid off all the high interest rate debt. Besides my car loan, everything is less than 5.5%.
• I knew what I was getting into. I understood that my rate would most likely increase after the first 5 years. I knew that if I made Interest Only payments, I would owe the same amount in 5 yrs as I owed when I initially took out the mortgage. I knew that I took the risk of being upside down in my home if values fell.

This is my second home that I have purchased. On my first home, that is now a rental property, I knew I would keep the home for more than 5 years as either my primary home or a rental due to the close location to a large college. For that loan, I chose a 30 year fixed loan at 5.875%.

There you have it, my conscience is clear now. Proceed with your comments.

I have been hearing alot about the Bank of America No Fee Mortgage. I went on their website to check it out and it sounds like a pretty good deal. I went through the demo and they allegedly do not increase the rate to compensate for the lack of fees. They offer:

No Fee Mortgage PLUS
$0 Application Fee
$0 Closing Fees
No Private Mortgage Insurance
Close-On-Time Guarantee
Best Value Guarantee

I am thinking about refinancing in about a year or two but I could not determine if they offer this for Refi's. Anyone else looked into this?