Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Thursday, December 17, 2009

Passive Solar

I stayed home today because I was sick. It was a bright sunny day outside, but cold (the high was 18 F). Still, I decided to try an experiment. My wife and I have noticed that on sunny winter days, we can shut off the heater and open the front door (southern exposure), letting the sun shine in through the glass outer door. As long as it does not get cloudy, the sunshine on the front of the house -- with the door open -- is enough to maintain the interior temperature, and often is enough to warm the house several degrees. We don't usually do this when it's as cold as it was today, however, but I decided to give it a try. Even with temperatures in the mid-teens outside, the passive solar trick warmed the house by one degree over about six hours. That's six hours we didn't have to burn natural gas to keep the house warm. Plus, it made the dogs happy to soak in the sunshine for a few hours.

I wish we could use this trick more often, but since it only works in bright sunshine, it's not practical on days when we are at work for 8+ hours. The short winter daylight hours and the potential for passing clouds would thwart the experiment. If only we could teach the dogs to open the door when it's sunny and close it back up when it's not...

Sunday, December 6, 2009

Our Old Devices Still Work

Want to pay off your mortgage early? Reject the mindset satirized in this article from The Onion. Then use the leftover cash to pay down your mortgage principal.

Sunday, November 29, 2009

Monthly Summary: November 2009

Another Thanksgiving weekend is in the history books. Fortunately for our budget (and sanity), the wife and I avoided the crowds in the stores, and instead spent our time with family. We also enjoyed the autumn snowfall by hiking through the woods in the north country.

I'm still cycling to work. So far the cooler temperatures and darkness haven't stopped me. Of course, the real winter weather hasn't kicked in yet.

The November mortgage payment was the ninth of 120 scheduled payments on the ten-year mortgage, and the 23rd since we set our five-year goal back in late 2007.

Our balance was $115,267.40 at the beginning of November. As we did last month, we added $2,000 to our regular payment, which reduced the outstanding balance to $112,168.87.

Our prepayments saved us $95.77 interest in November, increasing the total interest savings to date to $1,481.38.

We are now $26,944 ahead of schedule on the ten-year mortgage, and would pay it off two years and one month early if we were forced to stop making additional principal payments at this point.

Thirty-seven months remain in our 60-month goal period. We can meet our goal by averaging total principal payments of $3,031.59 each month.

We have a very good chance of meeting our goal for the year when we make our last 2009 payment in December. This is definitely something to be thankful for, at a time when many are still struggling to make ends meet. We feel fortunate to be in the position we are in, and are glad to see our hard work paying off for us.

Saturday, October 31, 2009

Monthly Summary: October 2009

Happy Halloween! Happy extra hour of sleep this weekend! I'm still riding my bicycle to and from work, which means this is the longest I've commuted on the bike in any year. Last year I gave up in mid-October on account of darkness and colder weather. This year I'm using illumination and some new cold-weather cycling gear I recently acquired.

Our October mortgage payment was the eighth of 120 scheduled payments on the ten-year loan, and the 22nd since we started working on our five-year D2M plan.

We began the month of October with a balance of $118,354.03. We added $2,000 as a principal prepayment, which combined with our regular monthly payment to lower the outstanding balance to $115,267.40.

We saved $87.72 interest in October, which brings our total interest savings to $1,385.61 since the beginning of this project.

We're $24,848 ahead of schedule on the ten-year loan, and would pay it off one month shy of two years early if we abandoned all extra payments right now.

There are now 38 months left in our 60-month goal period. We must average a monthly principal payment of $3,033.35 to meet our goal.

Only two short months left in 2009. Hopefully we can limit spending during the holidays so that we can meet our yearly goal.

Wednesday, September 30, 2009

Monthly Summary: September 2009

The days are cooler, the nights arrive sooner, and the leaves are changing color here in New England. Only three months left in 2009.

September was a good month for wounding the mortgage. My wife's final paychecks for her summer contract work arrived this month. Because of her generosity (thanks, baby!) we put almost all of the extra income towards reducing the debt.

Our payment this month was the seventh of 120 scheduled on the ten-year mortgage, and the 21st overall since we set our five-year goal.

At the beginning of September the balance was $125,911.54. We made a substantial $6,500 extra principal payment, which when added to our regular payment lowered the remaining balance to $118,354.03 at month's end.

Because of our prepayments to date, we saved $62.43 in interest in September. Our total interest saved since the beginning of the project is now $1,297.89.

We are $22,760 ahead of schedule on the mortgage, and would pay off the note one year and nine months early if we stopped making extra payments after September.

We have 39 months remaining in our 60-month goal period. We need to average principal payments of $3,034.72 per month to achieve the goal on schedule. This is a nice decrease from last month.

Since we are nearing the end of 2009, it's nice to note that we are slightly ahead of pace to meet the goal we set for ourselves this year. With three-fourths of the year complete, we have paid down 78.55% of the $37,796.76 goal, meaning we must pay off a total of $8,100 over the next three months to achieve the 2009 goal (about $2,700 per month). This is definitely within our reach, based on our progress to date.

Tuesday, September 22, 2009

Bicycle Thoughts

During the non-icy months of the past two years (2007 and 2008), I rode my bicycle into work, as I did this year. I'd go for a few weeks, sometimes a month tops, before getting a flat tire. I ride on a few busy roads on my way into the office, and it seems like I would always pick up some odd debris that had fallen into the road and been swept into the shoulder (bicycle lane) by the motion of traffic. It would be a metal building staple, or a bit of wood, or a nail. I accepted the flat tires as part of the cost of commuting by bicycle, and got good at changing flats myself. However, early this year (spring 2009) it seemed like the flats were coming fast and furious. On a few occasions I'd only make it a few days in between flats. This felt excessive to me. So I asked around, and learned from other cyclists that I was getting flats much more often than I should be.

The solution I decided upon (based on composite recommendations) was to buy thicker, more durable tires, and beefy "thorn resistant" tubes. Since I made the upgrade, I haven't gotten a single flat. I've had four months of very regular riding, both on the road and off, and so far the remedy seems like a cure. Although my bicycle is heavier than it used to be, and my tires don't get quite as much traction when off-road (especially in sand), I'm glad that I'm not spending money on new tubes every other week. The tubes I used to buy cost around $4 to replace. The thorn-resistant tubes were about $10 each, but I've more than made up the difference in price by never needing to replace them. And as a bonus, I'm not constantly adding more trash to the world in the form of flat tubes.

Now I'm inspired to try riding later in the season than I have before. Last year I stopped riding in late October. In order to ride longer, I have to overcome both the darkness and the cold. Unfortunately I can't envision a solution for either issue without spending more money on lights, clothing, and (probably) studded snow tires. I'm having a tough time deciding whether the extra expense is worth it. My initial motivation for riding the bicycle was to save money, not spend more of it.

I really enjoy the ride to and from work, for a number of reasons. The exercise is great. The reduced vehicle emissions are a bonus. But my favorite part is that I don't get stuck in rush hour traffic. Even though traffic here in NH is not terrible, I have no patience for it. On the bicycle, I can ride the back roads, take shortcuts on trails, and sneak by stopped vehicles in the bicycle lane. I'm wondering if I would get the same satisfaction during the winter. Trails will be impassable due to snow, and I'm sure the cold weather will make the ride a bit more painful on the lungs. I also think I'd feel compelled to ride much more slowly around traffic than I do in the nice weather. Still, I know of two others who ride to work during the winter, so I know it's possible. I just have to decide if I have that much motivation.

Sunday, August 30, 2009

Monthly Summary: August 2009 (One Third Complete)

It's hard for me to believe that August is almost over. In many ways 2009 still seems fresh and new. My wife and I just returned from a week-long trip to Yellowstone National Park. Originally we had planned on a vacation closer to home, hiking along the Cohos Trail here in New Hampshire for a week. However, earlier this summer we received an invitation to go to Yellowstone with another couple who had already made arrangements to stay there, so by splitting the cost of lodging, groceries, car rental, etc, we were able to have a bit more adventure without increasing our vacation budget too much. We'll save the Cohos trail hike for another year.

Meanwhile, my wife recently finished her summer contract work and was very pleased with it. There is a good chance she may eventually be able to build on this this experience and gain full-time employment with the organization, which would interest her very much; however, a transition to that line of work would probably not happen for another few years. The good news for us is that she added to our income, which means extra money for mortgage prepayments; the (mildly) bad news is that due to the pay schedule, we won't have the money available until it's time to make September's mortgage payment.

We made the sixth of 120 scheduled payments on our ten-year mortgage in August, which represented the 20th payment since we set our five-year payoff goal in December 2008.

At the start of August our balance was $127,463.07. We added a modest $500 to the principal when sending in our regular monthly payment, which dropped the outstanding loan amount to $125,911.54.

We saved $60.27 interest this month. Total interest saved on our 10-year mortgage is now $197.72, and total interest saved since beginning our project is $1,235.46. This number is starting to become substantial.

We are now $16,198 ahead of schedule on the current mortgage, and remain on track to retire the loan one year and three months early if we stop making prepayments at this point.

We have 40 months remaining in our original 60-month goal period, which means we are now one-third of the way through the project. The original balance at month zero was $188,983.82, and after this month's payment we have reduced the principal by $63,072.28, which is 33.37%, or almost exactly one third of the initial amount. In other words,
our progress is right on track! Upon setting the goal, I wasn't sure how long we could continue to find extra money in the budget, but now that a significant milestone has been reached, I am confident that (barring major, unexpected lifestyle changes) we can continue to make steady progress toward ultimately "killing" the mortgage no later than December 2012.

At the start of the goal period, we had to average monthly principal payments of $3,149.74 to finish in 60 months. We currently need to average $3,147.79. Since the principal portion of our regular payment is much larger now (around $1,050) than it was back in December 2007 (about $775), we're benefiting from the additional principal payments we made over the past 20 months. What a great feeling to know that the effort has paid off!

Keeping up with this blog (even as infrequently as I do) has been great motivation to stay focused on the goal. The dread of going into work each day is offset by the promise that one day in the near future, I will have more control over my schedule, free from this large monthly obligation and the need to drag myself into an office every day to pay for it.

Wednesday, August 12, 2009

Retiring with a Mortgage?

If we suddenly received a windfall payment (lottery, inheritance, gift, etc) and had more than enough cash on hand to pay down our mortgage, would we do so? Absolutely, YES. Apparently some people don't feel the same way. I can't understand that logic, as I really want to be free of all debt, but perhaps there are factors I haven't considered which would make it advantageous to carry the loan even if sufficient funds are available to retire it (for example, if real estate values are rapidly declining and you are planning on moving in the near future).

Yahoo Finance today linked to a study published by Boston College which discusses this topic. I have to admit feeling somewhat vindicated after reading their conclusion: it doesn't make sense to carry a mortgage if you have sufficient assets to pay it off, unless (there is always an exception) you are interested in leveraging your property to invest in the stock market. Personally, I wouldn't want to wager my house on such a speculative investment, but I suppose there are some out there who might consider that a reasonable option.

Of course, it doesn't make sense to be "house poor" either -- that is, owning your home outright but lacking any meaningful amount of savings. I have to admit, there are times I'm tempted to raid our savings account to put a bigger dent in the mortgage balance, but I'm sure the day after I made such a decision, we'd have to come up with a bunch of cash for some unexpected expense.

Sunday, August 2, 2009

Monthly Summary: July 2009

My wife and I just returned from a week in to the Pacific Northwest, visiting my family. Even though we did not have to pay for lodging, it was a more expensive week than I had planned (food, entertainment, etc). However, we had a very good time, so I'm not regretting it.

Our mortgage payment in July marked the fifth of 120 payments on our 10-year mortgage, and our 19th payment overall since setting our five-year goal.

At the start of July, the outstanding balance was $130,502.88. We added $2,000 extra principal to our regular mortgage payment, which reduced the loan amount to $127,463.07 at month's end. I'm glad to see we've reduced the balance down another notch, into the $120K range.

We saved $52.36 interest in July, which brings our total interest saved over the (short) life of the 10-year mortgage to $137.45. We're $15,637 ahead of schedule on the loan. If we stopped making extra payments now, we'd still retire the mortgage one year and three months early, due to our progress since refinancing in February.

There are now 41 months left in the original 60-month (five year) goal period. Our average monthly payment needed to reach that goal rose slightly to $3,108.86.

We reached another psychological milestone recently. Based on two very similar numbers (either our original purchase price, or the current estimated market value of our house), we now have more than 50% equity in our home. In other words, we owe less than we own!

Friday, July 24, 2009

A Debt-Free Lifestyle

Earlier this year I wrote about a friend who recently paid off his own mortgage. I saw him last week and asked him how he is enjoying his new debt-free lifestyle. Although he's only been without a mortgage payment for three months, he's already taken advantage of the situation. The amounts that would have been allocated to his old mortgage during June and July were instead used to pay for a new on-demand hot water heating system, which supplies water for his personal use as well as to the radiant heating system in his house (replacing his old boiler). This should gain him some energy efficiency and bring down his utility expense in the winter.

During the month of August, he is taking three weeks off, unpaid, to travel and visit family. His company allows its employees to voluntarily take unpaid time during their slow summer season (between Memorial Day and Labor Day). Most of them take a day or two here and there. He said there was a bit of jealousy when some of his co-workers found out that he was taking three full weeks. I have to admit, I'm a little jealous myself. But to that, I say: Pay off the debt, and enjoy the rewards of your hard work! We will be there someday too.

Thursday, July 2, 2009

Monthly Summary: June 2009

Our new refrigerator was delivered today. I hope it keeps our food nice and cold for many trouble-free years to come.

The June mortgage payment was the fourth of 120 scheduled payments on the 10-year mortgage, and the 18th payment overall since the beginning of our five-year goal period.

Our loan balance from last month was
$136,519.50. My wife is earning extra income this summer, so fortunately we were able to add $5,000 to our regular mortgage payment in June. This reduced the outstanding balance to $130,502.88.

We saved $32.96 interest in June, bringing the total interest savings over the four months of the new mortgage to $85.09. We're now $13,585 ahead of schedule on the balance, which means that we'd pay off the debt 13 months early even if we suddenly stopped making extra payments.

We have 42 months left in our five-year goal period. To achieve success, we'll need to average a total principal payment of $3,107.21 each month. This is lower than last month, and also lower than the average when we began this adventure in January 2008, which means we are once again ahead of schedule overall. However, expenses keep piling up this summer, so we can't afford to lose focus. We need to limit our spending for a while.

2009 is already halfway over! Time is flying. Enjoy the summer while it lasts!

Sunday, June 28, 2009

Summer Happenings

Happy Summer! June has been very rainy in New England. So far I haven't regretted our decision not to install air conditioning in the house, as we really haven't had any days where it was necessary. Today it is cloudy and 65 degrees F with showers in the forecast.

Since we moved into our house three years ago, we've steadily replaced the appliances and fixtures one by one as they've broken or worn out. This includes the windows, the furnace, all of the toilets, the plumbing and drain in the shower, the exterior doors, the overhead garage door, the dishwasher, and now the refrigerator. (Our oven/stove is on notice; it is having issues. At least the microwave oven and the hot water heater seem to be working fine.) We've had service people attempt to fix the refrigerator four times now, and desipte replacing the temperature sensors and the main circuit board (the refrigerator "brain"), as well as defrosting the entire system several times, the refrigerator is still not working properly. First, it runs for much longer than it should, to the point where the heat exchanger freezes up, which makes items inside the fridge start to freeze. Then, after it's frozen, it does not cool well at all, so anything not in immediate proximity to the cooling elements is not kept at an adequately low temperature. This has been an ongoing problem since December or January. I've had to arrange to work from home on days when I've made a service appointment ("We'll be there sometime between 8 AM and 5 PM."). We learned how to take apart the refrigerator ourselves and manually defrost it using hair dryers. We even left it unplugged for a week and moved all of our food into my wife's sister's house in an attempt to thoroughly defrost it. In the end, nothing worked. I decided our attempts to fix our existing refrigerator were not worth the hassle, so we finally gave up and bought a new refrigerator this week. It's not as fancy as our old refrigerator, but I am hoping that its simplicity means fewer parts which could potentially break. The new fridge gets delivered next week. I'm looking forward to storing food without constantly worrying whether it is being kept cold enough.

In addition to the new refrigerator, we have been spending more money this year on travel than we did in 2008. I went to a bachelor party with some good friends back in March, and recently visited my grandmother before she died. We were also invited to go to Yellowstone National Park for a week in August with some friends, so we bought airfare and split the cost of car rental reservations and cabin reservations. I am really looking forward to that trip; hopefully my wife and I can find a chance to spend at least one night camping out in the backcountry.

The money spending doesn't stop there. We are putting new tires on our car, as the original tires have finally worn down to almost nothing. I also recently bought new tires and tubes for my bicycle (puncture and thorn-resistant) because I was tired of wasting money on replacing innertubes after getting at least six flat tires since March. At least I know enough to change them myself and didn't have to pay the bicycle shop to do that simple service for me.

On the income side of the equation, my wife picked up even more contract work this summer than she did last summer, which is good news for us. This means more money to help pay for the refrigerator purchase, travel expenses, transportation costs, and (hopefully) mortgage prepayments. We are barely on track to meet our goal in 2009. This is partly self-inflicted, of course. We'll need to carefully manage our spending this fall and winter to have any chance of success.

Wednesday, June 24, 2009

A Reminder

"When are you coming to Texas?" asked Granny. I had called her hospital room several days after she'd been admitted, at the request of my mom ("She's just sitting there with nothing to do", she told me). The initial round of tests and crowds of visitors had passed, so I had her complete attention. She sounded like her usual self, without any hint of trouble in her voice.

"I don't know," I told her. "Hopefully soon." I honestly didn't know when I'd make another trip to Texas. My family and I had been planning on meeting there in the Spring, but had canceled those plans for a number of reasons including finances and work schedules.

"Well," she replied, "I wish you could come visit. You should see people when they're alive. It doesn't matter when they're dead." Granny didn't mean for this remark to sound sinister or threatening. That was just the way she spoke, in a plain, matter-of-fact sort of way. You should eat your vegetables. You should look both ways before crossing the street. You should visit people when they're alive.

I don't know if she said that because of my Grandfather's passing last year (which was sudden and not necessarily expected despite his advanced age), or because she was being realistic about her own age (92), or because she had some indication that the pain and discomfort she had been feeling recently were signs of her own imminent death. Regardless, when my mom called me several weeks later and recommended that I come visit my grandmother soon (because Mom was noticing changes in Granny's behavior), I decided to take Granny's advice and go see her while she was alive.

My workplace has a bereavement policy that allows unscheduled time off for funerals and the like, which fortunately for me includes grandparents. However, my manager cautioned me that if I used the bereavement time while Granny was still alive, I'd have to use my own vacation time to return for a funeral.

I'm so glad I went to visit when I did. Despite her serious illness, Granny was still able to talk and laugh and remember everything. She seemed very happy to see me. I got to spend several good days with her. The weather was not too hot, so one day Mom and I took Granny for a walk in her wheelchair around the nursing home where she spent her final weeks. She got to look out at the surrounding countryside, which she appreciated, since she wanted to know what the outside world looked like (as the nursing home was as new to her as it was to the rest of us). I later learned from Mom that our walk together was the only occasion during her five-week stay in the nursing home that Granny felt well enough to go outside.

Granny died three weeks after my visit. I decided not to use vacation time to go to the funeral, since I already had allocated all of my remaining time off in 2009 for visits and trips with other family members (my parents, my sister's family, and my wife). It would have been a much tougher decision to make if Granny had not reminded me that it's important to see people when they're alive. So that's what I'll do. Granny's final gift to me was the gift of freedom.

I am looking forward to the day when I no longer have an employer to hold me accountable to a certain schedule. Meanwhile, I'll keep working hard now so that in the not-too-distant future I can stop working this way.

Sunday, May 31, 2009

Monthly Summary: May 2009

Our May payment was the third of 120 scheduled payments on our refinanced 10-year mortgage, and the 17th payment we've made since we set our five-year goal at the end of 2007.

At the start of the month, our balance was $139,026.46. Despite another month of high expenses, we were able to apply another $1,500 to the principal, which when combined with our regular payment, reduced the loan value to $136,519.50 at the end of May.

We saved $27.08 in interest this month, for a total of $52.13 saved since refinancing our mortgage. We are $8,552 ahead of schedule on the 10-year note, meaning we'd pay off this loan eight months early if we had to stop making extra payments at this point.

There are now 43 months remaining in our 60-month goal period. To meet our goal, we have to average $3,174.87 in principal payments per month. This is another increase from previous months. Hopefully we can bring this number back down in the near term, as we should have some additional income through the summer.

We passed another psychological milestone this month. When we bought our house, we took on a $204,000 mortgage. As of May we've managed to pay down one third of the original debt. We are making progress!

Tuesday, May 12, 2009

Escrow Update

Last May I called our lender to cancel our escrow account. We do not have to pay PMI, so the only thing the escrow was ever used for was our property tax payments (twice a year).

I predicted that we'd earn around $80 in interest per year by investing the escrow balance in a money market fund, and assuming the responsibility for making tax payments ourselves. That was before the bottom fell out of the equity and debt markets, so money market interest rates are much lower now (less than 1 percent) than they were back then (2-3%). Still, we've earned around $40 in interest over the past year on the escrow balance. True, those earnings are taxed, so our net amount was probably closer to $30, but still, that's $30 we wouldn't have otherwise. The rate that our lender was paying on the escrow account was ridiculously low, almost to the point of nonexistence. And now, with the fall in interest rates, it's probably actually zero. Since we're going to have an escrow account anyway, it might as well be in our own control. The interest is a nice bonus.

Perhaps someday in the not-too-distant future, rates will rise again, and we'll actually see that $80. From an interest-rate point of view, it's currently a good time to be borrowing, but not the best time to be saving. Still, given the choice, I'd rather be debt-free.

Friday, May 1, 2009

Monthly Summary: April 2009

Happy May! Spring has definitely arrived in southern New Hampshire by now. The flowers are in bloom, and pale greenery is sprouting out everywhere. This is one of my favorite times of year.

In April we made the second of 120 scheduled payments on our (still relatively new) ten-year mortgage, and the 16th monthly payment we've made overall since setting our five-year goal.

Our mortgage debt was $140,527.63 at the beginning of April. Because we were faced with such a large tax bill last month, we had barely any money left over to make an additional prepayment. However, we are determined to make at least a token contribution each month if at all possible. We were able to send an extra $500 along with our regular monthly payment, meaning we reduced the principal balance by $1,501.17 in April. The balance dropped to $139,026.46 at month's end.

We passed two psychologically important milestones this month. First, most obviously, our outstanding balance dipped into the $130K range. Second, for the first time since we've been paying a mortgage on our house, the principal portion of our regular (required) payment exceeded $1,000. Many personal finance bloggers talk about "snowflaking" when paying off debt; that is, applying any interest savings from the prior month against the current month's balance, and repeating the following month. As time goes by, the interest savings steadily increase the monthly payment amounts, accelerating the debt reduction like snowflakes building up a snowball as it rolls downhill. It's nice to see that effect in action on our mortgage, too. As I mentioned, our regular principal payment this month was slightly over $1,000. If we hadn't made prepayments on our new 10-year loan, that amount would have been around $976; and if we still had our original mortgage and had never made prepayments, the principal amount this month would have only been $835. Small differences can make a big impact over time.

We saved $25.05 in interest in April. We are $7,025 ahead of schedule on our new mortgage, and would pay it off seven months early if we had to stop making extra payments at this point.

We have 44 months left in our five-year goal period. In order to meet that goal, we need to make an average monthly principal payment of $3,159.69 (a slight increase from last month).

April was an expensive month, and May is looking to be almost as expensive. We've had to make a number of annual payments (vet bills, doctor bills, car repairs, tax payments, and so on) this spring, so the cash available to make mortgage prepayments is going to be limited. One bit of good news is that my wife has once again picked up some contract work this summer, so we should have some extra income in the near future to (hopefully) offset our recent shortcomings.

Monday, April 27, 2009

Rebate Checks

How frustrating is it to deal with rebate offers? Back in January when we replaced our furnace, I sent in an application for a $425 rebate that was offered for high-efficiency models. The rebate application instructions said that it would take 4-6 weeks for the application to be processed and paid.

After 6 weeks had passed, I had not received a check, nor received any updates from the organization offering the rebate (a coalition of Natural Gas companies in the Northeastern US). I called to inquire on its status. They said they had received my request but it was still being processed. About a week later, I received a form letter saying that my application was missing some information. I called them the next day to find out what was needed, and they told me that the contractor hadn't provided the necessary information regarding the furnace model number, installation date, etc on the work order I had sent to them. They told me to get in touch with the contractor and have them fax the missing information directly to the rebate center. I did all of this.

Two more weeks passed. I received an envelope in the mail, expecting it to be the rebate check, only to open it and find the EXACT SAME FORM LETTER I had received the first time around. I called back, asking what was going on, since I knew the contractor had provided information on my behalf. The associate at the rebate center told me that the contractor had sent the information, but it was simply on a fax coversheet, instead of an invoice.

I asked the associate to read the entire fax coversheet to me. He read for me a date, a greeting, the model number, and the installation date. I asked if there was anything else. He read the closing of the letter to me, which stated something to the effect of "If you have any questions, or need any more information, please call us at ...". I asked the associate why their processing department didn't call the contractor to work out the kinks. Apparently that is not the way they operate there. He said their standard procedure when processing applications was to send a letter in the mail if anything was incomplete. Perhaps all of their processors are mute, or unable to operate a telephone.

As someone who's worked in customer service in the past, I know that the unfortunate people who answer the phones at a typical company or organization are not the ones who make the decisions, or effect any change. So I apologized to the associate, but told him that because this was my second attempt to square this issue away, I was going to make him hold on the line while I brought a representative from the contractor into the phone conversation. I made it very clear that they were to work together, and that if anything was missing, or not formatted correctly, the agent from the rebate organization was to call the contractor directly.

Apparently, that approach was effective, because I did receive the check today (which took about 15 weeks to arrive, instead of six weeks). Following experiences like this one, I question whether my effort to resolve the problem was worth the eventual reward. Ultimately, I believe the $425 was worth it, because I can make good use of that money. However, I'm tempted to avoid all future purchases which require a rebate application to get the advertised sale price.

Thursday, April 16, 2009

Inspiration

My wife and I have a friend who is very particular about how he spends money. [Note: this is not one of those fake friends that some authors invent to illustrate a point. He is an actual person whose company we enjoy.] He abhors debt, and often mentions how he hates to "separate" from his money. He saves ahead of time when anticipating a large purchase (car, appliance, etc). He is also very patient, and will delay a purchase for months or even years if he feels he is not getting a good deal.

He owns a townhouse-style condominium, and for the past couple of years he's been looking to move into a house with a yard. He's made an offer or two, but no sellers were interested in closing any deals in his price range. All the while, he's been adding to his down-payment account, patiently waiting for the right house to come along.

We've told him about our progress toward our goal of being mortgage-free. He told me he's also been paying a little extra toward his principal each month since he bought his condo. Earlier this week, he stopped by my desk at work to chat. He said he'd been preparing to make another mortgage payment, and took a moment to consider the amount remaining on his loan. He also reflected on his down payment account, and realized that by combining that with some other savings he had, he could be rid of his own mortgage. So he took the plunge, and wrote a large check to his lender, and paid off his thirty-year mortgage in a little under ten years. Now he's free of that monthly obligation for as long as he chooses to remain in his current home.

He told me that he's much more excited about being debt-free than he imagined. He plans to continue to make a monthly "mortgage" payment into his savings to replenish his down payment fund. If he sticks to that, and is patient enough, he may be able to upgrade to a more expensive house and not have to take on another mortgage in the future.

What I find most inspiring about his new situation is the freedom and flexibility that he's gained. Unlike my wife and I (and most other people we know), he doesn't have to worry about dutifully paying money each month to a landlord or a lender. I think this is an envious situation, especially in the current job market. If my wife or I lost our job tomorrow, we'd have to figure out how we could cut our spending in order to keep paying the mortgage until we found new work. If our friend finds himself in the same situation, he could reasonably survive for months without running into serious trouble.

Remember Maslow's Hierarchy of Needs? At the lowest level are the basic human needs, without which we cannot survive. To paraphrase Maslow, they are food, water, health, clothing, and shelter. Although I have no concrete data to prove this, it seems to me that for the average person in a modern, first-world society, shelter is far and away the most expensive of these needs to satisfy. Water is inexpensive. Clothing can be acquired gradually, for relatively low cost, and is durable enough to last for years if properly cared for. Food expense can be kept to a minimum in times of need. And for most people, good health can be obtained by making a personal commitment to healthy habits [I have to qualify this by defining health expenses as those which are preventative, rather than costly "cures"]. Our friend has therefore cleared a major hurdle in ensuring that his basic needs are met, regardless of his employment. He is no longer a slave to The Man.

Although I'd like to be able to say I'm completely happy for our friend, and don't have any jealousy of his new situation, I do admit that our $140K mortgage balance feels like a dead weight by comparison. However, I'm going to try to use this as an inspiration to keep working toward our own goal, knowing that patience and discipline do pay off in the end. I want us to have the freedom to go to work because we choose to, not because we feel we have to. I want us to spend the prime years of our lives actually living our dreams, not just working toward them. So we continue to hope for the best, and follow the plan, and look forward to the day when we too can start making mortgage payments to ourselves.

Tuesday, April 14, 2009

Another Tax Bill

After last year's big tax bill, I was hopeful that the actions we took in 2008 to modify our allowances (withholding more taxes each paycheck) would result in a lower tax bill this year. Unfortunately, that was not the case. We owe even more this time around. Although we did update our W-4s after filing our taxes last spring, we had several months of inadequate withholding to overcome. We also (fortunately) earned more in 2008 than in 2007, while having fewer deductions (including less mortgage interest paid).

I'm guessing we'll run into the same issue next year. The instructions for the form W-4 advises married couples with two incomes to withhold extra money on top of zero allowances. We've decided against that. We can instead save on our own, earning interest on the money we save, and expect to pay a tax bill each year instead of receiving a refund. At least it wasn't a surprise this time around.

To make matters worse, our tax withheld for 2009 will be even less this year than it should be. As a planned stimulus measure, the IRS requires employers to withhold a smaller amount each paycheck starting this month. However, for dual workers like my wife and I, the reduced withholding is being credited to us twice (once for each of our paychecks). This means we will have more money available in the short term, but could have an even larger tax bill at this time in 2010 -- because we'll have to make up for the current overpayment when it's time to square things up with the government.

We're not going to make much of an extra payment to our mortgage principal in April because of the tax bill. However, my wife picked up some extra work this month, so we should have a modest amount of additional income to help offset the big expense.

Wednesday, April 1, 2009

Monthly Summary: March 2009

In March we made the first payment on our new 10-year loan.

Because of the refinance we did not have to make a February mortgage payment. As a result, we were able to add $6,500 additional principal to this month's normal payment, for a total principal reduction of $7,472.37. While this number looks impressive (to me, anyway), it is misleading for a couple of reasons. First, as I explained previously, the amount financed in the 10-year loan was greater than we actually needed, which meant we received a cash payment from the new lender. Part of the $6,500 amount was the surplus cash being returned to the loan. Second, we didn't make an additional principal payment in February, so we saved up the extra cash we would have applied to the loan last month, and tacked it onto this month's check.

We haven't yet realized any explicit interest savings on the new mortgage, though implicitly we saved interest because the new loan has a lower rate than the old one did.

Because of the prepayment we've shortened the term of the new loan by six months.

We have 45 months remaining in our original 5-year goal period, and must contribute an average of $3,122.87 each month to the balance to achieve that goal.

Our net change from the end of January to the end of March was a debt reduction of $4,534.91. This is an average of around $2,267 per month. This is lower than usual for us, but the cost of refinancing made the difference. I hope we make this up by the end of 2009, and start benefiting in 2010 and beyond.

April is going to be a challenging month financially, but I remain cautiously optimistic because of our plans for the rest of the year.

Saturday, March 28, 2009

"Convenience" Fees and Bicycle Maintenance

One of the questions I asked when initiating the refinance process was whether our new lender offered an online payment feature on their website. I was told they do. While this is true, I was disappointed to learn that they charge an $11 "Convenience Fee" for this service (for each transaction!). I complained about this to Customer Service, who explained that the new lender contracts with a third-party service to facilitate the electronic transfers, and that the lender doesn't profit from those fees.

I don't entirely believe this. I'm surprised that the fee would be so high, given that most major financial institutions allow for direct debit (aka electronic funds transfer, or EFT) free of charge. I pay some bills this way. Our old lender offered the service for free as well. If the new lender is truly not profiting in any way from those fees, then in my opinion they have made a poor choice of selecting a reasonably priced third-party service. If I was to submit 12 payments a year via the online payment feature, that would be an annual cost of $132! So instead, I'll just mail payment by check. This isn't my favorite approach, since there is always a lag time involved, and the chance that checks get processed incorrectly, or lost in the mail. But since postage is currently less than 50 cents per letter, I'll take advantage of the savings and monitor our account to ensure that funds get applied correctly.

I was also going to look into the option of online billpay. My only concern is that I don't know if my allocation instructions for extra principal would be received by the lender (even if I add them as a note on the transaction). If the lender doesn't receive specific instructions to apply extra funds to the principal balance, then they automatically apply them to the next regular payment on the schedule (which includes both principal and interest). That would do nothing to help us achieve our goal.

Meanwhile, my bicycle is all tuned up and ready for riding in 2009. I have learned how to make some adjustments myself, like fine-tuning the braking and shifting systems, aligning the headset (handlebars), cleaning and lubing the chain, and so on. But I wanted to have the wheels trued (made perfectly circular), which is a task that is beyond my current abilities. A colleague at work knows a guy who has worked as a bicycle service technician and manager for the past 15 years, who is now trying to start his own shop. Because of this, he charges less than the large bicycle store in town, and was able to complete the work in one day (the shop wanted 2-3 weeks). If anyone needs good bicycle service in southern New Hampshire, let me know and I'll send you his info.

I'm looking forward to cycling to work this year. Monday I'll resume the commute by human power. It's about time!

Monday, March 2, 2009

Monthly Summary: February 2009

This summary won't be in the same format as prior entries because we are currently transitioning between two loans.

We paid a total of $725.06 interest to the two lenders in February, but we did not pay down any principal. In fact, the balance of the new loan is greater than the old mortgage. This is because (1) the new lender based the loan preparation documents on an old mortgage statement, and (2) the closing costs
($1,700) for the new mortgage ended up being included in the overall loan amount. Neither of these was what I wanted, but in the end it was convenient because we didn't have to come up with certified funds for closing. I'll just make a large payment in March on the new mortgage to cover two months of extra principal contributions. We'll pay a little more interest next month than we would have otherwise, but I can live with it, especially given the benefit we'll receive from interest savings in the long term due to the lower rate.

At the close of our original mortgage, our balance was around $145,062. If we hadn't made extra payments to the principal, we'd be sitting on a debt of over $178,900. Because of this, our cumulative interest savings since December 2007 were over $1,000. That's real money.

We still have 46 months left to meet our original five-year goal. We'll need to pay an average of $3,217.39 each month to meet that challenge. This number rose substantially this month, but will drop back down again after the March payment is complete.

Monday, February 23, 2009

Refinancing

One of the most frustrating parts of having a fixed-rate mortgage (aside from the debt itself) is the arbitrary nature of the interest rate. While it's possible to find slight variations in rates between lenders when shopping for a loan, the most important factor in determining the rate (the collective credit markets) is beyond the borrower's control. After we locked in our 6.00% rate back in 2006, I had watched the average non-variable mortgage rate slowly trend downward. For a while I was tempted to refinanance, but every time I ran the numbers, I found that the difference in savings wasn't meaningful when offset by the closing costs required to draw up a new loan. This was magnified because we weren't planning to spread those savings out over a longer term (assuming we could keep pace with our goal of paying off the debt within five years or less). So after a while, I stopped paying attention to the rates. I convinced myself that it was unlikely we'd ever see a rate low enough to make refinancing pay off.

Then, about two months ago, my dad mentioned that he had refinanced his own mortgage (an adjustable-rate loan which was about to reset) at a rate much lower than we were paying on ours. I told him about my doubts, but he referred me to a lender who had reasonable costs and suggested that I explore it further. After I ran some numbers with the going rate, I realized that refinancing would actually benefit us even if we maintained our progress toward the five-year goal.

To make a long story short, we now have a new 10-year mortgage with a fixed rate of 4.625%.

There are three advantages to this new loan. First, and most obviously, the interest rate is lower. This means we will fork over less money to the lender each month, leaving extra cash which we can use to pay down the outstanding balance. Second, we reduced our term. Instead of having 10+ years left on a 15-year mortgage (which was our status as of the most recent payment on the old note), we now have a 10-year loan. This is a psychological advantage. And third, our monthly payments are lower. The lower payment (along with the shorter term) will benefit us greatly if we run into misfortune and have to suspend (or abandon) our goal. As it stands now, as long as we can make the (new lower) minimum payment, we will be mortgage-free in no less than 10 years.

I'm going to pause a moment and savor the rewards of our hard work to date. Had we not paid down the mortgage so aggressively in 2008, I doubt we would have been able to reduce our interest rate, term, and monthly payment in a single transaction. Ahhh...

There are some drawbacks, of course, primarily the closing costs associated with the refinancing transaction. We also had the hassle of providing a lot of paperwork to the new lender, and taking time out of our schedules to attend the closing. It may take us a while to get used to dealing with the new lender when making the first few payments. And, to top it all off, I have to figure out a way to account for the transaction in this blog when charting our overall goal progress. :)

Of course, the only significant drawback of those I just mentioned is the cost of the transaction itself. This amounted to about $1700, covering various fees, reports, certifications, and taxes. I ran several hypothetical scenarios through my spreadsheet model (using both the old mortgage and the new debt for comparison) and found that the cumulative monthly interest savings should allow us to break even somewhere in the next 9-11 months, depending on how successful we are at making extra principal payments. Since we are nowhere close to paying off our mortgage in a year or less, this transaction should benefit us in the long run.

One peculiarity of the whole process is that while we did make an interest payment during the month of February (partially to the old lender and partially to the new lender), we don't have to make our first principal payment until the end of March. So we'll save the payment we would have made this month (less the closing costs) and apply that amount toward our first payment on the new loan.

Now, wish me luck in figuring out how to make sense of all of this in our Progress numbers...

Saturday, January 31, 2009

Monthly Summary: January 2009

Today is one of those brilliant, cloudless, blue-and-white days that makes winter in New Hampshire so enjoyable for me. Plus, spring is not too far off...

Our January payment was the 33rd of 180 scheduled payments on our 15-year mortgage, and the 13th since we've been working on our five-year goal.

At the beginning of 2009, our mortgage balance was $148,043.79. We added $2,000 to the required payment, for a total principal reduction of $2,981.25 this month. The outstanding balance at the end of January stands at $145,062.54.

The mortgage balance is now $33,838 less than it would be if we had never made any extra payments to principal. If we had to stop making extra payments after this month, we would still pay off the mortgage three years and one month early.

We saved $158.40 in interest during January, for a total of $1,037.74 in savings during the life of this project.

The average monthly principal payment required for us to achieve our five-year goal rose slightly to $3,086.44.

2009 is already shaping up to be an interesting year for us financially. I'll elaborate on those details when they are known.

Monday, January 19, 2009

2009 Goal

Since we exceeded our goal in 2008, my wife and I discussed whether we should increase our goal for 2009. We finally settled on keeping the goal amount the same this year as we had last year.

The arithmetic is simple: the yearly goal amount is the total principal amount from the start of the project ($188,983.82) divided by the number of years we gave ourselves to complete the project (five). This amounts to $37,796.76 per year. This is our goal for 2009.

The main reason we won't be increasing our goal for 2009 is because we won't be selling a vehicle this year. We exceeded our goal in 2008 by a little more than $3,000, which was almost exactly what we contributed to our mortgage from the proceeds of the car sale.

There are a few uncertainties in 2009. First, I have no idea whether we'll owe any income tax this year. Last year's tax bill was an unwelcome surprise. We did adjust our withholding in April 2008 to avoid another big bill, but there were three months at the start of 2008 when we may not have had enough withheld from our paychecks. I am hoping we owe only a small amount, or end up with a flat return. A refund would really surprise me, though.

Second, my wife will again be doing some contract work this summer. This could potentially increase our income, but it's hard to forecast how much demand there will be for her work. I can't predict how much this would add to our bottom line at this point.

Third, there is always a chance one of us will lose our jobs. We don't have any specific reason to fear this, but employment is far from certain these days. Obviously, if this happened, we would likely have to put the entire project on hold until we could find new work.

Still, I am optimistic for the future. I've been running some numbers through my hypothetical spreadsheet model and noticed a few pleasant future scenarios. Being realistic, I've filed these under "Don't count your chickens before they hatch."

  1. If we pay $2,000 extra toward our principal every month beginning in January 2009, we will retire the loan in month 57 (three months early).
  2. If we continue the pattern of payments from 2008 in 2009 and beyond, we will eliminate the mortgage debt in month 51 (nine months early).
  3. If we contribute the same average extra amount to principal as we did in 2008 ($2,541.66), we will also complete our goal in month 51.
Right now I think scenario 1 above is most realistic given our current monthly income and expenses, but I'd be thrilled if we could achieve scenarios 2 or 3. Time will tell. If we do as well in 2009 as we did in 2008, we may have to set a more aggressive goal for ourselves in 2010.

Sunday, January 11, 2009

Death of the Furnace

In this blog's first entry I described the demise of our dishwasher, and lamented our first setback of 2008. Not to be outdone, 2009 threw its own challenge at us: our furnace died.

To be completely honest, the furnace was not entirely dead. Rather, we put it out of its misery. Our home was built in 1985, and the furnace was still original equipment. When we bought this house in 2006, the home inspector told us that the furnace was in decent shape, but was past its life expectancy and would probably need to be replaced in the next several years. Heating technicians made similar comments during their annual maintenance visits. Of course, they wanted to sell us a nice new home heating system, and offer us all sorts of snappy financing deals (no interest for a year!) so that we could replace our furnace without delay. We politely declined their offers, and started saving for the future.

I know very little when it comes to home furnace operation, but I'd take a peek at the furnace when the technicians would do their maintenance work. To me, the furnace always looked OK, and I knew it still kept the house warm throughout the worst that a New England winter could throw at us, so I was never in a hurry to replace it. This year, however, was different. When the technician came to visit in late December 2008, I tagged along as usual. Unlike previous years, the technician and I discovered the furnace was sitting in a pool of some sort of condensation, with mineral deposits all around. Additionally, the amount of carbon monoxide in the air duct was higher than it had been before. Apparently a trace amount of CO is always present, but the level this year (although not yet high enough to cause any health issues) was trending in the wrong direction. So after hearing the technician's description of a likely problem with the secondary heat exchanger, and how the flue gases were slowly corroding the furnace from the inside out (the source of the condensation), I realized that this was going to be the end. Within a week and a half, our old furnace was gone, and a brand new system was sitting in our basement.

My wife and I decided to purchase the highest-efficiency model that was compatible with our existing duct work. In the end, we parted with over $7,000 of our savings. On one hand, it was tough separating with so much money all at once. However, we were both glad that we had saved for this occasion, and didn't have to incur any new debt to keep our house warm and (hopefully) carbon monoxide free. And fortunately, we didn't exhaust our entire reserve account on this purchase.

We'll continue to keep putting a set amount into our savings each month, as we have been doing for several years now. And while it may have an impact on how much extra principal we feel comfortable applying toward the mortgage over the next few months, we don't anticipate that this will be a significant setback. The contribution to the savings account is always a separate line item in the budget from our extra principal payments. Of course, another major home expense could change things. Right now we're hoping for the best and preparing for the worst. I suppose that's the best any of us can do, right?