Almost five years ago I reached a major milestone.
“The short story: I get to keep my house, and here’s how it happened.” – My Mortgage Modification Chronology
This month I have progress to report. What? You thought that was the end of the story? Even episodes in our lives have sequels, and sequels have plot twists.
The Good News
I’m still in my house, my only residence in forty years that feels like home. It is the smallest and the best. I also feel sorry for it. While my financial situation is dramatically improved, there are more than enough maintenance projects to keep me and my budget busy for months or years. Even winning the lottery would mean taking a while to get everything done. That’s okay. In my time as a real estate broker, I’ve yet to find a property I like more, regardless of price. I can imagine something sweeter, but so far it is only in my dreams.
The Mortgage Reality
Thanks to Parkview Services free counseling services I was able to navigate the HAMP program and renegotiate my mortgage from about 5.75% (as I recall) to 2%. 2%! My monthly payments dropped to something affordable as long as I maintained my frugal lifestyle (and deferred some maintenance.) Everyone agreed I just needed more time to rebuild my career, business, and financial situation. That process continues, which ironically involves helping other people buy and sell homes and land. I’ve been a millionaire, and I’ve fought foreclosure. I have clients at both ends of that scale and in the middle, too. An interesting sweep of perspectives.
Browse back through those links above for how I (and Parkview) did it. Basically, HAMP would try a variety of financial mechanisms to make a mortgage affordable. Drop the interest rate to 2%. Lengthen the period to 40 years. Forgive the interest on some of the debt. Select in order as needed to make it work, if possible. My mortgage became a 40 year, 2% mortgage, with the interest for a few thousand forgiven.
I let it all slip into history as I worked and worked. A wakeup call came from a financial news interview a couple of years ago. It wasn’t a job interview, it was a news interview (Nerdwallet.com). They interviewed me to better understand why someone would accept a 40 year mortgage. Long mortgages drop monthly payments, but increase interest payments overall. Read My 40 Year Mortgage for that story. The interviewer pointed out that my new mortgage wasn’t a fixed rate. It was an ARM, a dreaded ARM, that was due to increase in 2019. Vague memories remembered that detail.
Fine by me. Interest is only a part of my monthly payment: interest, principal, taxes, insurance. The ARM has limits. This month it jumped from 2% to 3%. A large percentage increase but on a much smaller number than the whole. The difference is about what I spend on gas for my truck each month. The ARM is due to jump next year, too; but that’s only another 1% at which point it should be capped at 4% – a historically low number. It will happen about the time my pension drops, but my income should compensate by then.
One aspect of HAMP is a series of bonuses for good behaviour, or at least paying the mortgage on time. Every year, so quietly that the Customer Service people have to look it up each time, HAMP pays down my principal by $1,000 for a total of $5,000. That’s months of principal payments every year. It confuses the mortgage company, and requires me to double check my bills; but I’m happy that it happens. For a mortgage like mine, that’s equivalent to ~ 2% the value of the remaining debt. Thanks.
Meanwhile, the real estate market moves on – impressively so since 2014. Remember 2014? The Great Recession? How quickly and easily we forget. For a house under 1,500 square feet (mine’s 868 square feet), the median sales price in 2014 was $191,200. May 2019, $327,200. That’s $136,300 in five years, or about $27,260 per year. My house has made almost as much as my business has made – and with a lot less effort. Basically, for every month I’ve been in the house I’ve passively accrued a month’s living expenses. Real estate can be quirky. (Understatement.) Compound growth can be phenomenal. (Another understatement.
Some people ask why I don’t sell. Easy. If I sell, I lose housing that I love, at a price that’s more affordable than renting something drearier, and I miss out on the additional appreciation without making enough to buy. Will I sell? Not if I don’t have to or want to; but I won’t say never because never isn’t a word to rely on.
The market is up. Great! So are tax assessments. Oops. At least for now, that’s acceptable. I don’t mind paying for government services. Let’s hope my income grows faster than those taxes.
No. Not mine. Not me. I think I’ll be fine. My mortgage company, however, has filed for bankruptcy. Plot twist! Aren’t you glad you kept reading? Yes. A few months ago I received a letter with their name on it, the word ‘bankruptcy’ and I wondered if somehow they were going to make me go bankrupt, or they thought I had filed for it. Nope. It’s them. Considering some of their business practices I saw in practice, I’m not surprised. In a dream world, their bankruptcy would clear my debt; but in the real world debt operates differently. If you want a window into that weird world, check out John Oliver’s video. Still, I can dream.
I don’t know. Isn’t that the classic question with the impossible answers? No one knows what’s next. All we can do is guess. On a personal finance level, my income, asset, expenses, and liabilities will all shift. That’s all I know. Act as if tomorrow will be like yesterday, work and hope to make it better, repeat. I do have a new dream property in mind. It sits there with my thoughts of winning the lottery jackpot. In the meantime, I have a house that I can call home. Too few can say that. Now, about that paint, and that roof patch, and that window, and that dishwasher…