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  • My week in review

    I don’t know if I’ll make this a regular feature, but there are some random things that I thought were worth sharing but not really worthy of their own post.

    The highlight of the week was definitely initiating the payoff for my student loan. Once that goes through, we’ll be debt-free except for our mortgage!

    I don’t know what my problem is, but I’ve screwed up what’s supposed to be an incredibly easy bread recipe twice now. It’s the focaccia recipe I mentioned a couple of weeks ago. Camille from Growing Up Gabel made it and said it was great so I was really looking forward to it, but I obviously lack her breadmaking skills. The problem is probably that I’m not using all white flour – it’s just so hard for me to not substitute half white whole wheat flour, but of course it’s much denser. I’m guessing that if I want to do this, I need to add some gluten, even though the dough seems to rise beautifully in the bowl and pan. I’m going to try it soon with just white flour and that will at least help me determine if it’s me or just the ingredients.

    Just because I’ve done something well in the past doesn’t mean I can do it well again – at least, not on the first try. I made calamari for dinner this week for the first time in at least six months. It had been so long that I kind of forgot how to deep fry the things. It took a few batches before I was able to keep the oil at a consistent temperature, and I even overcrowded the pot once. But the pieces that came out well were amazingly delicious, as always. I don’t really have a recipe, but here’s my technique: Marinate the squid in buttermilk for a few hours. When ready to cook, heat the oil and dredge the squid in cornmeal. Fry until golden brown. Drain on paper towels and sprinkle lightly with salt.

    Our federal tax refund seemed to come especially fast this year. I think it was within two weeks of our accountant e-filing our returns. We had to pay the state, so I don’t know how quickly state refunds are being issued, though apparently they are being issued now (for a while during the budget crisis, refunds had been withheld). This year was the closest we have ever come to getting our federal and state taxes exactly right (i.e., not owing any money nor getting a refund). Of course, I try to get as close as I can every year so I think it was just luck.

    Thanks to all of your suggestions, I think I put together a pretty good non-food Easter basket. Of course, I’ll know for sure after their reaction tomorrow. But thank you again for your help!

    The keys to paying off debt: persistence, consistency & growing your debt snowball

    Kelly at The Ā¢entsible Life explained how she’s paying off her debt, and asked her readers how they’ve paid or are paying their debts off. It occurred to me that the single most important thing we’ve done to get so close to being debt-free is being persistent and consistent. We’ve made every payment on time. We’ve always paid extra, even if it wasn’t much, especially at the beginning.

    And the other thing we’ve done that’s been key is grow our debt snowball. The “debt snowball” is simply the payment you make each month toward your debt – it’s a “snowball” because when you pay off one debt, you apply the payment you’d been making toward the next debt, and you keep doing it until all of your debts are paid off. (No Credit Needed has a more detailed explanation about debt snowballs.)

    We’ve consistently added to our debt snowball over the years. Salary increases in particular have helped grow our debt snowball. Also, any long term decreases in our expenses – such as a reduction in our insurance premiums – have been applied to our debt snowball.

    I’m a believer in “snowflaking” too – a term coined by PaidTwice for random savings that can be applied to pay off debt. It’s been my experience, though, that snowflaking is most effective when you can’t grow your debt snowball. Growing the debt snowball is more effective than snowflaking because it’s a regular thing – there’s that much more money going toward the debt each month. But of course, adding snowflaking to your growing debt snowball will pay off your loans fastest of all.

    Warning for new mortgage holders: Ignore that biweekly payment invitation

    We refinanced our mortgage in January, and that meant we got a new lender. In today’s mail was an invitation to enroll in the lender’s biweekly payment plan which “does the work” to help me pay off my loan faster by automatically deducting half of my regular monthly payment every 14 days. The way the math works out, I would end up making 13 “full” mortgage payments each year, theoretically without feeling any pain. According to my lender’s calculations, I would pay off my loan 4 1/2 years earlier and save over $34,000 in interest.

    Um, no thanks. I can manage that “work” on my own perfectly fine. I’ve planned all along to pay extra principal each month, and now I plan on rolling my debt snowball into the mortgage once my student loan is paid off. That’ll result in the mortgage being paid off 23 1/2 years early and over $100,000 saved in interest.

    What really staggered me was the cost of the biweekly mortgage plan. The lender must make a fortune off of anyone who signs up. There’s a $375 enrollment fee, plus a $1.50 transaction fee with each payment. With 26 payments, that’s an extra $39 each year!

    I hope no one pays these fees, because they’re outrageous. In these economic times, you’d think lenders would actually just be grateful to have a customer who pays on time!

    Becoming debt-free: Sometimes you just need to believe it’s possible

    We are very close to paying off my remaining student loan, which would leave us with the mortgage as our only debt. For some reason, I had assumed until today that we would shift what we’ve been paying on the student loan into savings for retirement and the kids’ education. It had simply never occurred to me to wonder how long it would take to pay off the mortgage if we continued the debt snowball.

    Until today.

    Out of nowhere, I began to wonder would happen if we applied the student loan payment to our mortgage. I was shocked to see that we could pay off our mortgage in just over six years.

    So that’s the new plan: Pay off the mortage by mid-2015. We’ll save over $100,000 in interest. I was a little concerned that with our new plan, refinancing in January may have cost us money, but I’m happy to report that we’ll come out ahead by $5,000 (i.e., if we hadn’t refinanced and started accelerating the mortgage in a few months, we’d have paid $5,000 more than we will now).

    Of course, nothing is set in stone. The new plan presupposes that we’ll be sending the boys to public elementary school or a very affordable private school, and that my husband and I will hold on to our jobs. With the current state of the economy, I don’t want to take anything for granted. But even with the extra principal payment each month, we’ll still be able to save, as we have done while paying off our non-mortgage debts, so we will remain financially stable.

    And the end of being in debt is in sight!

    We’re Finally Re-Financing Our Mortgage

    I’ve mentioned several times in the last year that I’ve been keeping an eye on interest rates to see if they fall low enough to make re-financing worthwhile. And they finally have.

    We’ll be re-financing at 5.125% or lower. Thanks to some special programs that we’re eligible for, we got a low rate with a 60-day lock and two float downs, so if rates go down between now and when we close, we’ll be able to get that lower rate. The loan officer said she thinks rates will go down in the next few weeks, so I took her advice and took the 60-day lock at 5.125% instead of a 30-day lock at 5% with no float down.

    Calculating whether the refi would be worthwhile involved enough numbers to make my head spin, but the loan officer ran the numbers with me a second time and confirmed my conclusion. A key factor in making the refi worthwhile is our commitment to continuing to make our current monthly payment even though the minimum payment will be lower with the new loan.

    Here’s an example of the math (I’m using round numbers for the sake of privacy and convenience – and remember, if the balances seem high, they’re normal or even on the low side for Southern California):

    Current mortgage
    Current balance: $230,000
    Current interest rate: 5.75%
    Current monthly payment: $1460
    Interest paid to date: $78,300
    Interest that would be paid over life of the loan: $275,215

    New mortgage
    Balance including closing costs: $235,000
    New interest rate: 5% (I’m gambling that it will go down at least this much)
    Interest paid over the life of the loan making the same monthly payment as above: $175,740
    Total interest paid on this loan plus interest paid on previous loan: $254,040

    Difference in interest paid between the two loans: $275,215 – $254,040 = $21,175

    So that’s a savings of $21,175 in this example, and the loan will be paid off in 25 years instead of 30. In our case, the numbers work out to a savings of about $30,000 over the next 22 years, and we’ll still pay the mortgage off two to three years before our current mortgage (assuming no extra principal payments).

    Of course, we can always increase our savings by paying more extra principal each month, and it’s likely we’ll do that. Still, I can’t help but wish the savings were greater (and they may be if the mortgage rate goes down further before we close). But in any event, for just a few hours’ investment, we’ll have saved ourselves $30,000.

    Maybe it’s time to think about re-financing your own mortgage? . . .