Your Mortgage Is Debt, Too!

I see it all over the place.  On TV.  On blogs.  In news articles.  It doesn’t matter.

When talking about debt, mortgages seem to get glossed over.  The focus always seems to be on ‘non-mortgage debt’.

While this is good, the fact remains that you still owe on your mortgage.  It’s still debt.  And, chances are, for most that have a mortgage, it’s the biggest debt and/or the biggest monthly payment that you have associated with debt.

So, why might mortgages get ‘left out’ of the debt discussion?  Just speculating here:

  • Backed by an asset – Up until the last few years, it was a pretty safe bet that most mortgages had an asset behind them, so you could kinda sorta see how it wouldn’t get looked at as the same type of debt as other things that aren’t asset based.  Most people (and banks too) figured that the house could always be sold and that could make the debt go away.  With so many people underwater these days, that’s really not the case anymore, but the old mentality seems to have stuck.
  • It would make a BIG BIG number even BIGGER – We talk about the debt in America in the trillions.  It’s already an overwhelming number.  To add in the collective mortgage balance would make it an astronomical number.

Personally, when I look at our debt, the mortgage is included.  Why?  Because it’s a debt!  Plain and simple, it’s a loan that we took out and have to pay back, and if that’s not the way to define a debt, then I need a new dictionary!

How do you look at mortgage debt in the ‘how much debt do I have’ discussion, and what other reasons might there be for not including it in the debt totals other than what I’ve listed above?

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Are You A Lending Tree User?

Lending Tree is one of the most fascinating sites I’ve seen.  I don’t use it nor do I have plans to, but I’m always interested in the stories I read about Lending Tree experiences.

I subscribe to lots of other personal finance blogs, and I’ve seen all kinds of stories about people who have had various degrees of luck lending out money on Lending Tree.  I’ve seen some success stories, and also a share of not so successful stories, where borrowers have defaulted on the loans.

What I haven’t seen too much of are stories of the borrowers.  Who out there is borrowing money from Lending Tree?

I’m interested in stories about Lending Tree experiences, but especially borrower stories.  If you’re a current or former Lending Tree user, or have posted your experiences, let me know.  As I said, I have no ties to Lending Tree in any way, but am curious more than anything.

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Don’t Pay For A Bi-Weekly Mortgage Plan

My boss recently bought a house, so quite a few of our work related conversations over the past couple of months have shifted away from work and discussing the various stages of home ownership.

One recent conversation brought to light that it’s probably worth reminding people that it’s generally not a good idea to pay to enroll in the bi-weekly mortgage plan.

Me: How’s everything with the move going?
Boss: Pretty good.  Hey, look at this.  We just closed last week but I already got something from the mortgage company.  They offered this bi-weekly mortgage plan for $295.  It shortens the mortgage time by seven years.
Me: Yeah, I get those all the time.
Boss: I was just doing the math and it looks like all they’re doing is making twenty-six “half” deductions instead of twelve “full” deductions.  That basically means that they’re just taking an extra payment a year, right?
Me: You got it.
Boss (getting excited now): So can’t I just add extra to my payment each month and accomplish the same thing?
Me: Yep.
Boss: So, why would anybody pay $295 for this?
Me: Because a lot of people see the savings, figure a $295 investment is worth it, but don’t realize that they can accomplish the same thing without paying a dime for it.
Boss: Sneaky.
Me: It sure is!

My boss and many others have figured out on their own that paying for the bi-weekly plan is simply not worth it.  If you want to do the same thing, all you have to do is:

  1. Identify what your monthly payment is for principal and interest only.  This means that if part of your payment consists of an ‘escrow’ amount to cover such things as property taxes, insurance or association fees, you should exclude this.
  2. Divide the amount above by twelve.
  3. Add this payment amount to your monthly payment.  If possible, make sure you specify this as an extra payment towards principal.  Also, make sure that you don’t have a pre-payment penalty (most standard mortgages don’t).
  4. Enjoy the shorter mortgage pay-off time AND the $295 you saved by not letting the bank do this for you.

Example:
Your monthly mortgage payment is $1500 broken down by:
Principal and interest: $1200
Escrow (taxes / insurance): $300

You only want to concentrate on the principal and interest, so your focus is on the $1200.

Divide that by twelve and you end up with $100. That’s going to be your ‘extra’ payment per month.

Contact the bank (or logon to your account if your bank lets you) and add $100 per month to your payment, specifying it to go towards principal.

Your payment will now be $1600 per month:
Principal and interest: $1200
Extra principal payment: $100
Escrow (taxes / insurance): $300

We aren’t doing this at the moment because we’re redirecting any extra money we have towards other things like paying down student loan debt and saving for some home renovations, but should this be a priority, this will be the formula we’ll follow!

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The Downside Of Paying Down Debt

Last month, we were able to pay down a very big chunk of student loan debt as a result of using a portion of our tax refund and a small inheritance that I received.

These were two decent size chunks of money, that when it added together, allowed us to eliminate about 25% of the student loan debt in one fell swoop!

That was awesome but as it turns out, there’s a (tiny) downside.

What could that be?

Well, it’s that it created such a ‘high’, that the return to normal debt payments is sort of a letdown.

This month, we paid off the normal amounts as is typical for a standard month. Because we paid off so much, we paid less interest and more towards principal, but overall, it just doesn’t generate the same rush.

So, the moral of the story is that while ordinary is good (and I’m not complaining), the rush generated by the bigger chunk payments is exhilarating.

All the more motivation to search for ways to find extra bucks.  For a drug addict, this would be bad because it would be ‘chasing the high’, but since we’re talking about debt payment, this is one rush that I don’t mind chasing!  Especially if it leads to us knocking chunks off our debt outside of the standard monthly payments.

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