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A few months ago, I wrote about how we
dug ourselves out of debt.Once we cut our expenses and stopped living beyond our means, it didn't take long to make significant progress against the tens of thousands of dollars we owed. And after a few years of struggle and sacrifice, we finally paid everything off. Once all of our consumer debts were gone, we turned our focus to our mortgage.
Because we were young and dumb when we upgraded to our current home, we didn't put a lot of money down. Therefore, we were stuck paying private mortgage insurance.
Big mistake. Unfortunately, there was no easy solution to our problem. The only way to remedy the situation was to pay down our mortgage until we reached 22 percent equity in our home. So as usual,
we were learning from our mistakes the hard way. By paying private mortgage insurance, we were wasting $135 every single month.
we could fix this problem, our first move was to
refinance our mortgage with our current lender from a 30-year loan at 5 percent into a 15-year loan at 3.25 percent. Doing so was a giant leap forward toward our goal of becoming debt free. We were really excited about moving to a 15-year loan and found it psychologically satisfying to be paying so much more toward the principal. And since we were now free of all consumer debt, we started throwing a ton of extra cash at our mortgage every month. Within no time, we reached 22 percent equity, and I was sure that our private mortgage insurance would just magically disappear!
A complicated matterNot so fast. A few months after we had accumulated enough equity, I called our mortgage company, MetLife, to see why we were still paying premiums. I had read the
Homeowner's Protection Act of 1998, which stated that lenders were required to drop private mortgage insurance automatically once a borrower reached 78 percent in home equity, so I didn't understand why were still being charged. I needed answers.
Even though we had far surpassed the equity requirement by this point, MetLife refused to talk to me about it over the phone. Instead, they insisted on mailing out a PMI cancellation packet that would “answer all of my questions.” I waited and waited, and almost a month went by before I received the information. Within the cryptic paperwork, I found out that MetLife required that I get an appraisal to prove that my home hadn't dropped in value.
Fine. Unfortunately, the fine print also stated that they wouldn't even consider dropping my private mortgage insurance until I had paid on the loan for 24 consecutive months, regardless of how much equity I had amassed.
The hassle of being in debtOf course. Since I had refinanced into a 15-year mortgage, my “new loan” was only 11 months old. And although I typically read all of the fine print in any contract, I obviously missed this important piece of information. If I had known that refinancing would impede my ability to drop my private mortgage insurance, I probably would have waited to refinance in the first place.
Although it was my fault for not knowing their PMI cancellation policy, I asked my lender to reconsider their terms. After all, I had been their mortgage customer for over five years. Not surprisingly, they stated that my old loan didn't count and they wouldn't consider dropping the premiums until I had made a payment on the new loan for 24 consecutive months. After 24 months, I could
pay for an appraisal and ask for the PMI to be taken off. Even then, they stated that they couldn't guarantee anything.
This is what I hate about being in debt.
Being in debt means being obligated to someone else. It can mean sorting through pages of fine print to try to prevent yourself from getting screwed. Being in debt means spending time and energy keeping track of how much you owe, and making sure that you aren't paying unnecessary fees or interest.