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

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.