The Myth Of The Bi-Monthly Mortgage

Posted on April 5, 2008

First things first, making bi-monthly payments on your mortgage WILL cut your mortgage repayment time down significantly. Using bi-monthly payments on a $200,000 mortgage at 6.0% you will have the mortgage paid off 6 years early and save about $50,000 in interest. What happens is that you are paying 26 bi-monthly payments which is the same as 13 monthly payments. In essence you are paying one more monthly payment a year.

If bi-monthly payments can save you a lot of money, then why do I mention them as a myth? Well, most of the programs that banks offer their lenders are really not good financial tools. Bi-monthly programs are really just budgeting tools that you have to pay extra money for. Most of the programs have a $200-300 enrollment fee and then charge a $2-5 dollar fee each payment. The fees go to pay the company that is handling your payments. That’s right, another company other than your lender holds your first payment and then pays the mortgage company when they receive both monthly payments. That is a lot of money for something that most lenders let you do yourself.

Another myth is that you save money because your first payment of the month gets applied early and cuts the amount of interest you have to pay. This isn’t the case. Almost every mortgage lender still has the same monthly amortization schedule whether pay monthly or bi-monthly.

So is it worth it? Probably not. The same outcome can be accomplished on your own, by either paying one extra monthly payment a year or paying an extra 1/12th payment each month. As long you make sure the extra money is going towards principal, you will achieve the same results. I would rather see people become responsible for their own money, rather then letting another company budget for them. Plus when you are in control you get the advantage of skipping the extra payment if times get tight. It should also be noted that most of us aren’t at the point were we should be considering paying extra on a mortgage. That will come once all your other debt is gone, an emergency fund is in place, and retirement accounts are growing.

Get Rich Slowly reminded us of another interesting way to payoff your mortgage early: pay an extra principal payment each month to get rid of your mortgage in half of the time.

» Filed Under Debt Elimination, Psychology of Debt, Real Estate

Things I Didn’t Think About As A Renter - Top 10 Hidden Home Ownership Costs

Posted on February 16, 2008

Our culture constantly bombards us with the message that home ownership is the pinnacle of financial maturity and success. The problem is that there are a lot of factors and costs that are hard to anticipate as a renter. Don’t get me wrong, there are numerous wonderful benefits to home ownership like tax breaks and the freedom to do whatever you want with the property, but it isn’t necessarily the obvious winner over renting.

Below are my top ten hidden costs that I experienced since making the transition from renting:

Property Taxes – They started at $190 a month and are now $278. A 46% increase in 4 years. This is for our 900 square foot condo in South New Jersey.
Association Fees - $100 a month when we started. $200 a month now. A 100% increase in four years.
Sewer Bills - $25 a month
Maintenance Costs – Since we bought a tiny 8 year old house we haven’t much, but things like new faucets and dryer vent cleaning do add up.
Hassle Factor – When the refrigerator breaks as a renter, you call the landlord and it should quickly be replaced at no cost. As an owner you must quickly rush to the store and buy a refrigerator yourself.
Utilities Formerly Covered By Rent – When I was renting we were shielded from the true costs of thing like water and gas, but these can run hundreds of dollars a month depending on the house.
Mortgage Interest and PMI – I know there is a tax write-off, but it is depressing to see 80% of you mortgage payment going to interest. Plus, to get a tax right off you have to give the bank thousands of dollars a year. Giving your money to a charity of choice gets you the same write-off, but your money goes to a good cause. For Private Mortgage Insurance we were paying $50-80 a month, because we didn’t put 20% down. Luckily our house appreciated fast and we were able to get rid of that cost.
Closing Costs – Renters rarely realize how big a check you need to write at closing, often thousands of dollars that isn’t part of your down payment.
Desire To Upgrade and Furnish – When you rent your desire to paint and buy decorations is usually tempered, because you know the place isn’t yours. Once we had our own place, we wanted to paint, decorate, upgrade, and furnish. Often more than once in the same room.
Stuck Factor – With renting you can up and leave at any time. With a house, you have to sell before you can do anything. If the market is down or prices drop, you may even be stuck in your house or have to shell out money at closing to sell it.

Owning a house brings a lot of joy and freedom, but there are definite benefits to renting that often get overlooked when you get enamored with wanting to own a home. I know I didn’t have a good sense of what owning a house entailed. I am glad that we learned these lessons with a small inexpensive house!

» Filed Under Materialism, Real Estate

Quiet Millionaire Book Contest Give Away And Free Land Update

Posted on October 16, 2007

First, I am giving away the brand new copy of The Quiet Millionaire that I reviewed. To enter the contest leave a comment on this post that lists your top reasons you got out or want to get out of debt. If you don’t want to get out of debt, list your reasons why. Simple as that. A winner will be randomly chosen Sunday October 21st @ 9pm EST.

Click the following links for more information on the book :

My Quiet Millionaire Review
Queit Millionaire Amazon Page

Second, poetloverrebelspy @ Less than a Shoestring shared a great NY times article with us. The article relays some real life experiences about one family’s move to North Dakota. Cities haven’t lived up to their promises, and citizens aren’t as open to change as they need to be. It is a long read, but pretty interesting if you found the free land in the Midwest article interesting.

» Filed Under Misc., Real Estate

Own Free Land In Any US State

Posted on October 11, 2007

I just bought a gorgeous piece of land in Hawaii. I have never been there, but I have always wanted to visit. The picture above just looked so appealing, I just couldn’t resist this deal when it presented itself. How does this fit into our frugal mindset, you ask? Well, the land was FREE!

Through the website Own A Piece Of America you can get free land in an US state of your choice. You don’t have to pay taxes or maintain the land, but you also can’t build on it or sell it either. When you claim your free land, you receive ownership of a one square inch lot. It’s not the most useful piece of property in the world, but it is quite fun to tell your friends that you own land in Hawaii, Alaska, Maine, Montana, or California!

There is no real catch. The website owners have purchased all of the land legally and divvy it out one square inch at a time. It is fully legal, and the website makes money through advertising and selling paper or electronic state deeds to the properties. Pretty fun idea, what state do you want to grab land in?

» Filed Under Misc., Real Estate

40 Acres And A Mule - Free Land Still Available In The United States

Posted on October 10, 2007

Ever dreamed of packing up and moving away from your hectic stressful life for the peaceful, rural, prairie beauty of the Midwest? Here is a great oppurtunity for you: some places in the US will actually give you free land, if you move to their town. That’s right, free.

This dated article from CNN Money chronicles one family’s move from Las Vegas to Kansas, where they were given free land to build a house. Some places will even provide monetary credits for each member of your family.

Here is a little flavor of how it works in Ellsworth, Kansas :

In Ellsworth County, for example, there are 23 lots available for free to individuals, assuming they’re pre-qualified to build a house that is at least 1,000 square feet and agree to build a house on the land within two years time.

In addition to the land, families with children stand to receive $1,500 to $3,000 toward a down payment when they buy in the area. “Each new child is worth an additional $6,000 to our school district from the state,” said Anita Hoffhines, executive director of Ellsworth County Economic Development.

Here are some free land opportunities in Kansas. There are similar incentives in North Dakota, although as the site says that the “odds are, you are not a candidate for NW North Dakota.”. You need a portable job, financial security, and a solid moral fiber to qualify. The North Dakota site was written by some good marketers, because just reading through it gets my mind thinking through the possibilities. The article also shares that towns are willing to work deals with new business owners that plan to bring economic value to the area.

Living on the east coast, I would have never thought that the Midwest was so desperate for new residents. I have been to and through most of the northern US states and they are astonishingly beautiful, although if you are used to suburban/city living there isn’t much of anything there. In Wyoming it could be 200 miles between gas stations! It is still quite fun to dream!

» Filed Under Money Savers, Real Estate

6 Reasons To Buy A Starter Home

Posted on June 14, 2007

I proved in my article about delaying gratification how buying a starter home could save you large sums of money. I want to reiterate the financial benefits of not over stretching ourselves and the drastic difference it can make in our long term wealth. It would take a whole other post to explain how helpful it has been to start a marriage with low financial stress, and how big an impact it has made in our wealth and vision for the future.

With that said, let’s look at some of the other benefits of buying a starter home. I am speaking from personal experience, since The Happy Rockette, The Happy Pebble, and I still live in a 900 square foot condo. Here is what we have learned:

Buying a home is a learning process. You first home purchase will teach you a lot about the location, types of houses, and features that you are looking for. It is makes financial sense to learn these things with a less expensive property rather then your ‘dream home’. You learn to drive in a beat up 1978 Chevette, not a Porsche. The same principle applies to a starter home. When you go to buy your ‘dream home’, you will have a much better idea of the qualities that will make you truly satisfied.
You will make mistakes. Most people under estimate the true cost of ownership by overlooking costs like taxes, association fees, lawn care, utilities increases, and maintenance. Learn what it takes to own a house without the stress of a huge mortgage payment. You will create a tangible framework from which to envision the three hours every 10 days that it will take to cut the backyard of you ‘dream home’.
Be a low-stress handyman. Try fixing some things yourself. You can educate yourself and save a lot of money, while not feel like you are ruining your dream home. Personally, I have had a chance to do some small projects around the house, most notably a successful granite tiling of the kitchen counters. I got the experience of planning home improvement projects on my own and convinced my wife that I could do a job well.
Be content. Buying a starter can help you avoid the consumerist mentality. We have realized that we can be happy anywhere. Our dream home won’t make us happy, we control our feelings. We have mostly broken the desire to keep up with our peers. Sure we would like to be able to entertain better, but sitting on the floor or the couch for dinner keeps it real. Setting frugal patterns early in your life will really provide a big return on invest throughout the rest of your life.
Simplify. Small spaces help breaks the clutter habit. A smaller house helps break those hording tendencies, and makes you think through what items are ‘keepers’.
Finally, a starter home helps you to truly appreciate the ‘dream home’. By the time you get to your ‘dream home’, you know exactly what you want and you will have earned it. Not to mention the fact that your finances will be in a vastly superior state. *Note that renting versus buying a starter or dream home will also depend on an array of other factors such as market potential, taxes, income levels, length of stay, and a variety of personal issues.