Home Ownership

Our First Home

Let's talk about something fun...

Home ownership is something that we take for granted in this country.  When I lived in Argentina the interest rates on mortgages was around 24% for 10 years fixed or 12-14% for 2yrs and variable after that, with a substantial down payment required.  Obviously in the United States, borrowing money is very cheap and accessible to people in almost all financial situations with an income.  When my wife and I bought our first home in 2008 we put down 20% on our $84000 fixer upper.  Because of my wife's credit we had to base our loan from my income, this was not a problem securing the loan.  After the housing collapse and the mortgage rate decline I looked to refinance.  We initially started with an interest rate of 6.125%.  We had a P&I payment of $409/Month, I added $141 to that payment and split them into biweekly payments to maximize my interest savings.  Even with biweekly payments and the increase over principal we were looking at paying more for our home in interest than the initial purchase price.  As our AGI increased I looked into shortening our term and overpaying our mortgage by a lot.

In December 2010 (two years after purchasing our home), I found a local credit union willing to be creative with our balances.  They refinanced our home, a very small home equity loan, and two outstanding credit card bills to a 5year home equity loan at a fixed rate of 3.99%.  We just finished our first year of repayment December 2011.  Therefore we were able to change from an expected payoff of around 18 more years from now and about $90k in total interest to 3.5 more years of payments and $13k of total interest.

That sounds to me like a $77k savings as well as 172 months of having my mortgage allocation in my pocket instead of heading out the door.  172 months at my original payment of $550 is a whopping $95k, my extra payment of $950 for 44 more months is only $42k, that is a savings of $53K.

I can understand the choice to pay your mortgage down by just over minimum payments and investing the extra that you could put towards it but I would rather be 33 years old and have 100% equity in my house and only a roof over my head instead of a mortgage.

TOTAL SAVINGS IN HOMEOWNER COST = $130,000

Lessons Learned

Sometimes we learn very important lessons when we do something right.  Most of the time, we learn difficult lessons when we do something wrong.

Right after we got married we got involved in a vacation club.  Unfortunately this club has not suited our vacation needs at all.  It is not a bad program, just not for us.  We should have been married longer before we decided on something like this.  With a smallish upfront cost $3250 we thought it was a nice opportunity but five years later we have used it once and owe an annual maintenance fee of $325.  We really hurt ourselves with this program and I would consider it one of my largest financial regrets.  This program can not be given back and so far we have been unable to sell it even at a very steep discount.  

The lesson to learn is: Do not make a hasty decision in front of a salesman.  If they don't give you time to make up your mind then you don't want it.  (I had to learn this lesson now two times to truly believe it.)

Old vs New

This is a conundrum faced by today's young adults that our parents and their parents did not face.  Today the average college grad starts their professional life with just over $25k in student loan debt.  My parents both graduated from private universities, my father from Syracuse and my mother from Villanova.  They graduated with a cumulative debt load of $4500. Today's youth are not only facing the extreme escalation of education costs and the ridiculous interest rates associated with them, but they are also faced with credit card debts, living expenses and other liabilities that their parents may not have experienced.  

My wife and I both worked while we were in college and were able to make some headway on paying off our loans before leaving school, or not accumulating a loan in the first place.  Our Student loans currently look like this:
    Loans include both undergraduate bachelors degrees and my wife's masters degree.
Me:
Original Principle       Interest Rate        Currently Owe
$5,147.84             @        6.250%               $0.00
$8,430.23             @        2.875%               $4,746.14
$3,386.56             @        2.875%               $1,630.39
Her:
$9,431.89             @        6.250%               $4,016.42
$5,288.00             @        6.800%               $3,449.02
$7,475.00             @        6.800%               $5,394.51
$4,533.64             @        6.800%               $3,881.75 (masters loan)
$6,153.94             @        6.800%               $5,203.58 (masters loan)
Totals:
$49,847.10                                                  $28,321.81
We currently pay $625.00 monthly towards these loans biased to the highest interest rates.

Meanwhile my wife grew up in an economically disadvantaged family and she amounted many revolving debts that were unpaid and in collection.  Those debts were around $4k and since my student loans were the only debts I had, I used my very good credit to absorb her outstanding debts to clear her collections and allow her to build a new credit history.  Most of our parents did not face the extra burdens that the credit industry has been able to create for the youth of this country.  Don't get me wrong, I am a firm believer in the power of responsible credit use.  I have been a credit card holder since I was sixteen and I have made a substantial amount of money on cash back offered by the credit companies.
I merely want to point out that EASY credit, managed irresponsibly, can debilitate long term goals very rapidly. 

I am currently satisfied with the repayment status of these loans.  For 2012 I will not be changing the payout for them.  I would consider an opportunity to consolidate the loans in the 6% range but so far I have not found that opportunity.  Ideas are welcome?

Potential

There is a lot of potential to be found as a young investor.  I have so far spent the first six years of my professional life capturing as much earnings potential from my career set as I can.  My wife and I have together changed jobs (not careers) eight times to attempt to reach the highest earnings potential that we can in our respective fields.  My wife is a teacher by the way.  She has her Masters Degree and is a Reading Specialist.  I will get into her retirement contribution in the future. 

In 2006 I graduated from college and started planning for my retirement.  Maximizing your employment situation can be the quickest way to accumulate capital for a young adult.  Since 2006 our combined AGI has increased steadily.  Also considering side benefits of better/cheaper health insurance, pensions and retirement matching.  Your take home is not the only thing you should consider when job hunting.
AGI's Since 2006:                  % Change

2006: $33,514.00                    -------------
2007: $66,593.00                       198.7%
2008: $70,048.00                       5.19%
2009: $73,263.00                       4.59%
2010: $91,281.00                       24.59%
2011: TBD Roughly $105,000.00

The opportunity to generate a larger income annually is something that can not be taken lightly.  When you are considering retirement early and want to gain financial independence you may have to take a less attractive job to increase the bottom line.  I believe that for the time being (the next 2-3 years) our household income should see a 3-4% increase in AGI annually.

An Introduction

I will start off this journey with a little reflection of where I have been.  I was raised by my parents with three sisters.  Both of my parents were gainfully employed, my father as a small business owner and my mother as a RN.  I have been saving money since I can remember.  I still recall small IOU's found in my money box as a boy, from my parents, when they needed something extra that month.  My family provided for me all that I "needed" and some of what I wanted.  My parent's classic quote was "save your money!" when I asked them for something I wanted.

I have worked since I was fifteen but spent my early money on travel.  I have been to many beautiful places and had the fortune to live outside the country for a over a year before I went to college.

I am now married and my wife and I have been fortunate so far during the past six years.  I just turned 29 and I believe that my personal finances are coming along.  Throughout this blog I will be honest to myself and anyone who would like to read this.  I will post true and accurate information and if you have questions or polite comments please feel free to leave them. 

A quick mention of some highlights for this blog.  I am a Federal Government employee and will be speaking a lot about the TSP throughout my posts.  The TSP is an index investing tool with a match from the Government.  Please be patient with me as I begin to update my information.  Thank you for your interest.