I just sent in a final payment on my second mortgage of my primary residence. This was one of my 2013 goals that I set. I was able to pay off a loan balance of $55k in just six months.
Initially, in order to avoid paying PMI (mortgage insurance) , I got what is called an 80/10/10 loan. Basically that means an 80% first lien, 10% second lien and 10% down payment. Normally, in order to avoid paying PMI you have to have 20% equity in your property. If you are purchasing a property that means you need to make a 20% down payment. Well , one way around this is to secure a 2nd lien, to cover the remaining 20% of equity that you are not putting down. It was a way for me to get into the house I wanted much quicker and avoid paying PMI. I originally put down 10% and took out this second lien. I now have 20% equity in my home and only have a first lien.
Another reason I wanted to pay off this loan so quickly is that a 2nd lien is at a higher interest rate, this loan was at 7.39% which is really high. The only reason I took it out was that I knew I would be paying it off as quickly as possible.
This means I have eliminated a $380.35/month payment. If I had paid out this loan over the 30-year period, I would have paid an additional $80k in interest. My total interest paid was $1665.55 or 3% (approx 6% annualized).
I've set another goal to refinance this first mortgage into a 30-year fixed rate as close to 3% as possible (currently at 4.25%). If rates cooperate, I may be able to do this in the summer. This would save me close to $500/month.
Congratulations on getting the second lien paid off so early. I was really happy when I paid mine off a few years ago. Freeing up that monthly payment is a great feeling. Good luck on getting your main note refinanced.
ReplyDeleteHi Chad,
DeleteThanks! It is a good feeling to eliminate a big payment.
I hope rates stay low, I keep worrying they will be headed back up soon. I don't want to miss my chance to get near 3% on a 30-year fixed.
Take care!
Congrats man! It's nice to have one mandatory payment off of your shoulders. I bought my property 4 years ago, so my mortgage is at the beginning of its life. I didn't have 20% down, so I had to take FHA and pay PMI, but it's OK, hopefully one day I will be able to refinance again and pay 20% down and get rid of PMI. Congrats again on achieving your goal.
ReplyDeleteThanks Martin! Every bill I can eliminate will give me more money to invest. FHA is a good way to go when you don't have a big down payment. Our condo was financed FHA. It's next on my list for a refi. As you mention, the PMI is a drawback though.
DeleteThere's two ways to eliminate your PMI. Refinance and put down enough money that you have 20% equity in the house. So if your house has appreciated you may not need 20% down on the loan. For instance, if you house appraised at 200k, you'd need a loan size of 160k or less. The other way is to keep overpaying on the loan until you have 20% equity. You may need to get a recent appraisal but you wouldn't have to refinance that way, just be able to prove to the bank that you have the equity and they will drop the PMI.
Thanks for stopping by!
AAI,
ReplyDeleteCongratulations!
The fact that you were able to pay off a $55k debt in 6 months is spectacular in its own right, but the fact that you did that while aggressively adding to your portfolio is other worldly. Keep up the great work. Looking forward to seeing more progress!
If you're ever hiring, let me know! :)
Best wishes.
Thanks DM.
DeleteBusiness is definitely going well. I certainly can not complain. hope to turbocharge my DG portfolio with new capital the second half of the year.
We actually just went through an aggressive hiring spree but we have turnover almost every month. I am always looking for aggressive inside sales reps. I know you were probably kidding but if you are ever interested in moving to Texas give me a shout.
Take care!