How to Cut Your House Payment in Half

We got stuck in the middle of Storm Cleon.  Since we live in a place that NEVER gets snow, everyone freaks out.  Exhibit A: the bread aisle at the grocery store.

no bread

While it took me a little longer than expected to write this post, I did make this GIF of Pink busting it when we played fetch on ice!

dog-ice-gif

 

Now that you’ve caught up, here’s How to Cut Your House Payment in Half…

If a genie said you could get rid of one bill, what would it be?  For me, it’s our house payment.  Our house payment grates on my nerves for several reasons:

4 Reasons my house payment irritates me.

1.  It includes an escrow account.

An escrow account is an account for your home insurance and property taxes.  This means, the bank charges extra every month and they put this money in an account to pay your taxes and home insurance every year.  This drives me crazy, because rising prices in home insurance and taxes made our mortgage go up every year.  Also, it was hard to shop around for home insurance prices, AND the bank got to hold on to our money all year.  Annoying.

2.  It’s our biggest bill.  This year, I started whittling down our monthly expenses.  We’ve cut our cable.  I drive for free.  We cut our satellite radio and our country club membership (that we never used).  Because, we’ve been shaving down our monthly bills, it started getting to me that we couldn’t lower our house payment.

3.  I hate bills.  They come every month.  They scream until you pay them.  They’re just needy and entitled.

4. The main reason our house payment irritates me is because we’ve been working on paying off our house.  So, the house payment is literally the only thing between us and our goal.

Because I started thinking that if we could lower our house payment then we would free up more cash to throw at the principle of the house.  And, since we’ve paid off about 50% of our house, I thought now might be the perfect time to try leverage our equity to lower our payments.  (I can’t belive I just wrote “leverage our equity.” Giggling.)

3 Ways I Considered Hacking our Mortgage

1.  Putting our mortgage on no interest credit cards.

2.  Getting a home equity line of credit– and using it to pay off our mortgage.

3.  Just keep our nose to the grindstone and pay off our mortgage as fast as possible.

Needless to say, my husband wasn’t a fan of #1.  Unfortunately, #1 was my FAVORITE because I could have written a blog post called, “How we put our mortgage on credit cards.”  But, I didn’t win that battle.  So, we were stuck between options #2 and #3.

We had setteled on #3, thinking we’re less than a year away from paying off our house, so let’s not get distracted.  But, because I’m queen of distractions (literally, “Kelsie” means Queen of Distractions in Finnish) we decided to go to the bank to talk about our options.

I met with a banker and I explained our issue.  I said, “we’ve got some equity in our home and we are working to pay it off in the next year; but, I’d like to lower our payments– and get out of this annoying escrow account.  Would it be worth it if we took out a Home Equity Line of Credit?”

The banker said, “you could do that, but the Home Equity Line of Credit has an interest rate that changes, so if you don’t get your house paid off, then you might get stuck in a situation having to pay more than you do now.”

My face must have looked really sad.  I was about to ask the banker what he thought about putting our mortgage on credit cards.  Luckily, he interrupted my thoughts.

He said, “I think we have something else that will work for you.  We recently started doing small Home Equity Loans at the branch level.  It’s a fixed interest rate, and the bank will pay all your closing costs.”

After he did some calculations he said, “It looks like you could cut your payments in half.”

“What?!?” I thought.

Here’s what is happening in Kelsie terms:

Say your house is worth $100,000, but you only owe $50,000 on it.  You could take out a Home Equity Loan of $50,000 and use it to pay off your mortgage.  You won’t have a mortgage anymore, but you will have a Home Equity Loan.  Your payment will be sliced because you’re only making payments on a $50,000 loan instead of a $100,000 mortgage.  So, you’re “hacking” your house payment by resetting it at a lower amount.  In our case, this slashed our payments in half.  Also, because our interest rate dropped as well, we even shortened our loan from 30 years to 15.

So, what’s the catch?

There’s an early payoff penalty.  If we pay off our loan in under 2 years, we will have to pay the bank $500.  But, with the money we were saving, either way it will be worth it.

So, now the question is: do we continue working to pay off our house?  Or do we start working on buying a rental house? Answer: I have no clue.

Our payment is SO SMALL right now.  Like, less than I paid to share a tiny house with four girls in college.  So, we’re going to crunch some numbers, and I’ll let you know how we decide to go forward.

This post may not apply to you at all.  Maybe you don’t have much equity in your house yet, maybe you’re working on paying off a credit card or student loans.  But, I hope you realize that if something annoys you, there is ALWAYS something you can do to hack it.  Find a 0% interest credit card.  Take some Christmas money and put a chunk of it toward your student loans.  Go sit in front of a banker and ask questions.  Or, just put your nose down and get rid of your debt.

You can do it!  You live in one of the most privileged times in history!  Tell those needy and entitled bills to shut it.

4 thoughts on “How to Cut Your House Payment in Half

  1. Malori Dahmen

    Love this! Always up for a little creative banking. I’m still working on massive student loans, but I’ve already passed this along to a few friends who might be in the right mortgage situation to make this work for them.

    Reply
  2. Grayson @ Debt Roundup

    Now this is interesting. I have hated our decision to put escrow onto our mortgage. They never can get the calculation right and it just goes up every year. We are getting our house ready to list, so the next one won’t have an escrow account.

    I loved the creative banking here and I think it is awesome. I can’t say what you should do about continue paying it off or buying a rental. That can be a tough decision.
    Grayson @ Debt Roundup recently posted…To Spend or Not to Spend? That is the QuestionMy Profile

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