Madison MoneySports - Personal Finance Thread

[DavidM]

I assume so you can keep the money (and put it in some sort of higher yield account) and pay once a year, rather than 'loaning' the bank that money each month?

[Tyler.M]

Yeah, we paid PMI for a few years when we wouldn't have otherwise been able to get into a home. Down payment was only 5%, but since then the value of the home has gone up 39%. We refi'd 4 years later when our loan to value was enough to get out of PMI and opted to get out of escrow (paying taxes and insurance separately).

What's the benefit of that? i'm still in escrow for my insurance and taxes.

Monetarily there is no benefit. Escrow requires that a certain balance is carried through out the year, so if you fall below that threshold they adjust the mortgage payment the following year. When we had escrow the property taxes went up enough for us to fall below that threshold, so they raised our mortgage $300 more per month the following year.

Now the mortgage is fixed (principal/interest) and I budget in the annual property taxes due twice a year and pay that directly to the county. It also allows me to 'feel the pain' of taxes and insurance. It also made me realize that my insurance went up a LOT since we bought our house so I switched companies and saved about $1200/yr.

TLDR; with no escrow I'm more financially aware of the costs.

That's a good reason to get out of escrow. I need to look into this.

[JPolen01]

Yeah, we paid PMI for a few years when we wouldn't have otherwise been able to get into a home. Down payment was only 5%, but since then the value of the home has gone up 39%. We refi'd 4 years later when our loan to value was enough to get out of PMI and opted to get out of escrow (paying taxes and insurance separately).

What's the benefit of that? i'm still in escrow for my insurance and taxes.

Monetarily there is no benefit. Escrow requires that a certain balance is carried through out the year, so if you fall below that threshold they adjust the mortgage payment the following year. When we had escrow the property taxes went up enough for us to fall below that threshold, so they raised our mortgage $300 more per month the following year.

Now the mortgage is fixed (principal/interest) and I budget in the annual property taxes due twice a year and pay that directly to the county. It also allows me to 'feel the pain' of taxes and insurance. It also made me realize that my insurance went up a LOT since we bought our house so I switched companies and saved about $1200/yr.

TLDR; with no escrow I'm more financially aware of the costs.

That's a good reason to get out of escrow. I need to look into this.

I don't really see how. If you pay attention to the cost of your homeowner's insurance it's a non issue. You have no control over taxes. Now if you want you take your escrow money and invest it, I guess I could see a benefit if your making a safe investment. I wouldn't take that gamble myself. Escrow is the easy button to get all the stuff paid on time.


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[D_Eclipse9916]

Keep in mind the tax code screwed you if you are married and have a mortgage. Most of America now has no use for a Mortgage deduction; so that advantage of mortgages got taken away.

I am personally in the "get your shit paid off" camp. The proponents screaming "I make more money in the market are"
75% - Take that money and spend it and not invest it
20% - Take that money, invest it, get hit with an issue constricting cash flow; and now take huge hits to maintain cash flow
5% - Manage cash flow properly and invest properly.

I view my house as diversification. If the market tanks, I lose my job and dont have cash flow; I dont have a huge monthly bill to pay. I also can leave my money in the market to take advantage of the inevitable run up. It also means you have a backup to your backups if you need to access cash from your house equity. A nearly paid off or paid off house gives you leverage (and also reduces your debt to equity ratio when in worst case 2009 scenarios you will still be able to get a loan).

Most people who run into money issues are because of cash flow; not because of supposed net worth or what they "made" off investments. It's "do you have money right now to pay your bills". When a correction or recession occurs; you dont want to be having to pull money out of the market at its absolutely worst time to pay bills. Just something to think about vs "MAXIMIZE YOUR GAINZZZZZZZZ". That's my viewpoint as being extremely conservative; with the caveat that I do understand I am not squeezing every penny out of my hard earned dollars.

[Apoc]

Keep in mind the tax code screwed you if you are married and have a mortgage.  Most of America now has no use for a Mortgage deduction; so that advantage of mortgages got taken away.

I am personally in the "get your shit paid off" camp.  The proponents screaming "I make more money in the market are"
75% - Take that money and spend it and not invest it
20% - Take that money, invest it, get hit with an issue constricting cash flow; and now take huge hits to maintain cash flow
5% - Manage cash flow properly and invest properly.  

I view my house as diversification.  If the market tanks, I lose my job and dont have cash flow; I dont have a huge monthly bill to pay.  I also can leave my money in the market to take advantage of the inevitable run up. It also means you have a backup to your backups if you need to access cash from your house equity.  A nearly paid off or paid off house gives you leverage (and also reduces your debt to equity ratio when in worst case 2009 scenarios you will still be able to get a loan).

Most people who run into money issues are because of cash flow; not because of supposed net worth or what they "made" off investments.  It's "do you have money right now to pay your bills".  When a correction or recession occurs; you dont want to be having to pull money out of the market at its absolutely worst time to pay bills.  Just something to think about vs "MAXIMIZE YOUR GAINZZZZZZZZ".  That's my viewpoint as being extremely conservative; with the caveat that I do understand I am not squeezing every penny out of my hard earned dollars.

I think we're gonna need to see a citation on those statistics. 

We've never agreed about the point of a home, but your diversification point assumes people have a huge monthly payment or need to pay down their mortgage to have a rainy day fund. Neither is true for everyone. Our mortgage is ~45% of home value and paying it off will provide very few of the benefits you mentioned. I agree you should pay it down to have 20%+ equity, but paying it way down or paying it off is most definitely not a requirement to see those benefits. Pay it down to the point you can get a HELOC for what you need and stay above 20% equity, if that's your emergency plan.

Also note that if something like 2009 happens, you probably aren't cashing money out of your house that quickly. I agree with your premise about pulling money out of the market during a downturn, but there's also something to be said for not trying to get a home loan while dealing with whatever your emergency is (illness, injury, job loss, etc.). That, and you're borrowing money with an interest rate in an emergency, versus spending capital you already made in the market. No thanks on taking a rainy day loan against my house and feeling the pressure of having to pay it back. I'll spend some of my MAXIMIZED GAINZZZZZZZZ to keep the electricity on. Like I said, no one answer is right for everyone.

[D_Eclipse9916]

Keep in mind the tax code screwed you if you are married and have a mortgage.  Most of America now has no use for a Mortgage deduction; so that advantage of mortgages got taken away.

I am personally in the "get your shit paid off" camp.  The proponents screaming "I make more money in the market are"
75% - Take that money and spend it and not invest it
20% - Take that money, invest it, get hit with an issue constricting cash flow; and now take huge hits to maintain cash flow
5% - Manage cash flow properly and invest properly.  

I view my house as diversification.  If the market tanks, I lose my job and dont have cash flow; I dont have a huge monthly bill to pay.  I also can leave my money in the market to take advantage of the inevitable run up. It also means you have a backup to your backups if you need to access cash from your house equity.  A nearly paid off or paid off house gives you leverage (and also reduces your debt to equity ratio when in worst case 2009 scenarios you will still be able to get a loan).

Most people who run into money issues are because of cash flow; not because of supposed net worth or what they "made" off investments.  It's "do you have money right now to pay your bills".  When a correction or recession occurs; you dont want to be having to pull money out of the market at its absolutely worst time to pay bills.  Just something to think about vs "MAXIMIZE YOUR GAINZZZZZZZZ".  That's my viewpoint as being extremely conservative; with the caveat that I do understand I am not squeezing every penny out of my hard earned dollars.

I think we're gonna need to see a citation on those statistics. 

We've never agreed about the point of a home, but your diversification point assumes people have a huge monthly payment or need to pay down their mortgage to have a rainy day fund. Neither is true for everyone. Our mortgage is ~45% of home value and paying it off will provide very few of the benefits you mentioned. I agree you should pay it down to have 20%+ equity, but paying it way down or paying it off is most definitely not a requirement to see those benefits. Pay it down to the point you can get a HELOC for what you need and stay above 20% equity, if that's your emergency plan.

Also note that if something like 2009 happens, you probably aren't cashing money out of your house that quickly. I agree with your premise about pulling money out of the market during a downturn, but there's also something to be said for not trying to get a home loan while dealing with whatever your emergency is (illness, injury, job loss, etc.). That, and you're borrowing money with an interest rate in an emergency, versus spending capital you already made in the market. No thanks on taking a rainy day loan against my house and feeling the pressure of having to pay it back. I'll spend some of my MAXIMIZED GAINZZZZZZZZ to keep the electricity on.

It’s like there is more than one way to build wealth!

You know those stats are made up; just basing it off what I see on the cancer of social media. Yes I am judgey.

And gains aren’t gains till you actually take them. So yes I’d rather pay 5% for a heloc vs taking out investment money that took a 40% plunge.

Again, I will state that I run conservative and that if you are willing to hedge your bets tighter than me you can make more money. I would like to think you are in the 5% Range so know that I am not pointing my finger at you. It’s not an attack on anyone [emoji3060]

[Apoc]

Again, I will state that I run conservative and that if you are willing to hedge your bets tighter than me you can make more money. I would like to think you are in the 5% Range so know that I am not pointing my finger at you. It’s not an attack on anyone [emoji3060]

I think we're basically advocating the same thing, just slightly different approaches. 

1) Get out from PMI
2a) Ensure you have a favorable rate 
2b) Build comfortable equity
3) Invest remainder in home equity or the market, depending on risk profile

You're probably right about the 5% though, given jray got out of escrow to ensure he knows how much his home insurance is. No hate on you jray, just pointing out than most people probably aren't as obnoxiously obsessed with MAXIMIZZZZZED GAINZZZZZ as me.

[Sijray21]

You're probably right about the 5% though, given jray got out of escrow to ensure he knows how much his home insurance is. No hate on you jray, just pointing out than most people probably aren't as obnoxiously obsessed with MAXIMIZZZZZED GAINZZZZZ as me.

No perception of hate received. I know I'll likely fall into that category of people that spend any savings I receive instead of investing it. I also just wanted to feel the 'pain' of paying property taxes and home insurance, realizing just how much it is compared to my mortgage.

I'm not sure why remembering to pay those bills is such a big deal since home insurance is once per year and property taxes are twice per year where I live. It's easy to budget in monthly and easy to pay when I place reminders on my Google Calendar. It's probably the same reason I don't have any auto-pay on bills unless there's an incentive or discount by doing so. I'm not squeezing every penny for growth and I'm ok with that; my approach may change as our cashflow increases, however.

[Apoc]

FWIW, I have exactly zero bills on autopay because I want to look at the statement every month. Similar to you, I want the opportunity to identify changes or mistakes in what I'm being charged.

In other news, we had about $500 in miles on an old credit card that was going to be used when my wife traveled last April. That didn't happen and we just got charged the ~$500 annual fee last week. We don't use this card and haven't in about a year - the only reason I didn't cancel it was because we wanted to use up the miles.  So, we paid $500 to keep $500 in miles... which pisses me off because I like to think I'm so on top of everything. 

[ScottyB]

FWIW, I have exactly zero bills on autopay because I want to look at the statement every month. Similar to you, I want the opportunity to identify changes or mistakes in what I'm being charged.

we've caught a number of fraud instances over the last couple years because of this.  as much as i WANT to do autopay, it helps to be forced to monitor things.

[D_Eclipse9916]

You're probably right about the 5% though, given jray got out of escrow to ensure he knows how much his home insurance is. No hate on you jray, just pointing out than most people probably aren't as obnoxiously obsessed with MAXIMIZZZZZED GAINZZZZZ as me.

No perception of hate received. I know I'll likely fall into that category of people that spend any savings I receive instead of investing it. I also just wanted to feel the 'pain' of paying property taxes and home insurance, realizing just how much it is compared to my mortgage.

I'm not sure why remembering to pay those bills is such a big deal since home insurance is once per year and property taxes are twice per year where I live. It's easy to budget in monthly and easy to pay when I place reminders on my Google Calendar. It's probably the same reason I don't have any auto-pay on bills unless there's an incentive or discount by doing so. I'm not squeezing every penny for growth and I'm ok with that; my approach may change as our cashflow increases, however.

I struggle with Homeowners insurance constantly with my mortgage companies.  Since I have rentals I am constantly calling around for home insurance.  These companies know that people will fall prey to ignoring it through their mortgage.  They try to click it up every renewal and I end up going with a new insurance company maybe not every renewal, but certainly far more than I should.  Those calls and quotes are worth it.  The mortgage company ends up with a $1,200-$1,800 insurance bill; I always end up between 750-900.  Between multiple properties; it saves me $1500-$2k a year.  However, the mortgage companies struggle to have their paperwork together and I typically have to call to remind them to pay the right people and get refunds.  It's annoying to track; but my bill rate is way less than the 2 hours it takes to reconcile, call, and check up.

[.RJ]

I'm late to the party but there are plenty of loan products that dont have PMI. Its a waste of money.

FWIW, my last to home loans were a 2/2 ARM and a 5/3 ARM @ 10% down and no PMI and lower interest than a 30 year fixed.

I am also currently shitting myself a little about playing retirement fund catch up, I guess its not as fun a brand new 911 turbo but the $$ getting put away isnt any different.

[JPolen01]

You guys know most companies offer auto pay AND will email you the statement before the auto pay date, right? That's how our cell phone and utility bills are setup. We always review the credit card bill before we pay it though.

To echo, RJ - there's a hundred different types of loans right now. We had the option to pay $1500 (upfront, not rolled in) to remove PMI. It was a no brainer obviously.

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[Sijray21]

You guys know most companies offer auto pay AND will email you the statement before the auto pay date, right? That's how our cell phone and utility bills are setup. We always review the credit card bill before we pay it though.

I think it's fairly obvious that autopay and bill/statement emailing is a popular thing since it allows you to not really think about actually paying the bill if you choose to do so. I just prefer not to since the act of actually making the payment is a behavior that allows me to be more aware of where my money is going and how much goes to that specific bill. [emoji1745]

[Apoc]

You guys know most companies offer auto pay AND will email you the statement before the auto pay date, right? 

I hadn't heard that before. Thanks for sharing!

To be fair, all our utilities that do not change cost every month are auto-charged to our credit card. Anything where the price is variable (mortgage/escrow/taxes, electricity, water, etc.) requires action by me. Paying money out once I'm comfortable is a lot easier than trying to claw back an issue I happened to notice after the autopay. Having to pay the bill forces me to look at it, instead of skipping a month here and there because it's on autopay. Then again, I actively balanced my checkbook (in Quicken) every month, until my kid was born.

[Tyler.M]

Any advice on financing home improvements? I have equity in my home and need to do around 20k in projects. HELOC seems like the most obvious choice since rates are low but putting up my home as collateral doesn't sit well with me. I should probably just do cash but I wanted to do the projects quicker than what it would take me to save up for.

[Sijray21]

Any advice on financing home improvements? I have equity in my home and need to do around 20k in projects. HELOC seems like the most obvious choice since rates are low but putting up my home as collateral doesn't sit well with me. I should probably just do cash but I wanted to do the projects quicker than what it would take me to save up for.

I've never financed them, but have slightly dipped into my savings (replenishing the savings asap). Save up and do as much as you comfortably can do yourself. If you need to hire try to hire off personal reference rather than reviews.
Also take whatever you actually think a home improvement costs and then add 20%, because it's probably going to cost more.

Look for holiday/seasonal discounts and buy bigger things then and also scan for discounted flash sales, etc. They make a huge impact. Saved us a few thousand $ vs retail in our kitchen reno. Also I bought RTA cabinets and assembled them myself instead of pre-assembled. As also bought from a company in NY to avoid sales tax.

[Tyler.M]

Any advice on financing home improvements? I have equity in my home and need to do around 20k in projects. HELOC seems like the most obvious choice since rates are low but putting up my home as collateral doesn't sit well with me. I should probably just do cash but I wanted to do the projects quicker than what it would take me to save up for.

I've never financed them, but have slightly dipped into my savings (replenishing the savings asap). Save up and do as much as you comfortably can do yourself. If you need to hire try to hire off personal reference rather than reviews.
Also take whatever you actually think a home improvement costs and then add 20%, because it's probably going to cost more.

Look for holiday/seasonal discounts and buy bigger things then and also scan for discounted flash sales, etc. They make a huge impact. Saved us a few thousand $ vs retail in our kitchen reno. Also I bought RTA cabinets and assembled them myself instead of pre-assembled. As also bought from a company in NY to avoid sales tax.

That's good advice. I could feasibly do much of the needed work myself, it's just the time variable. Working 60 hours a week plus means a usual week long project will get stretched out....which isn't great when I'm renting out a room.

[HAULN-SS]

What kind of projects? Terrible timing if it needs to be done ASAP. Treated lumber is like 2x and some untreated studs I bought lately are more like 3x. Long delays on just about anything made of composite materials.

[Tyler.M]

What kind of projects? Terrible timing if it needs to be done ASAP. Treated lumber is like 2x and some untreated studs I bought lately are more like 3x. Long delays on just about anything made of composite materials.

Immediate needs are two (small) bathroom remodels and the kitchen. Then a furnace/ac replacement. Then landscaping. Longer term, the driveway needs repaved. Goal is to turn the home into a single family rental long term and rent it out to someone working for JMU, buy something else for myself with a bit more land.