That’s not a typo, today my house payment is only $75 a month. That’s about half the cost of the typical Comcast bill or about what a minimum wage worker in Michigan earns in an 8 hour shift. So how exactly did I get my house payment down to only $75?
In 2011 Mrs. C. and I bought our house for $145,000. We put down 20%, avoiding PMI and got a 30 year 4.25% mortgage with a $570 a month payment. Over the last 8 years we have systematically paid down extra money on our mortgage and today only owe $45,000.
I looked into refinancing our house recently to take advantage of lower interest rates, but the closing costs were prohibitive. It would cost me around $3,000 to refinance and since I plan on paying it off in full over the next 2 years the closing costs made the refinance not worth it.
Getting A HELOC.
Last year Mrs. C. and I got a heloc for $60,000 to finance low cost rental properties. Most helocs are interest only for 10 years, however my heloc required a 1.5% of balance minimum payment. After 1 year of this heloc I wanted to change it to an interest only. As part of this process I asked my bank if I could “pay off” my primary mortgage with my other bank and put the entire balance on my heloc.
For no cost at all I was able to change my heloc to an interest only $135,000 limit at Prime plus .25%, which today would be 5%. This would give me a new house payment of $187.50. This is extremely low, but is not $75. Well, for the first 6 months of this heloc the credit union gave me a teaser rate of 2% for the first 6 months, giving me the $75 mortgage payment.
Paying it like nothing changed:
I’ve been paying $870 a month on our house every month for the last several years. I will continue to pay $870 a month even though our payment is only $75. That gives us $795 per month paying down the principal and I plan to pay down an additional $5,000 in June. All together over the next 6 months I will pay an additional roughly $10,000 on our mortgage, dropping the amount owed to $35,000. When our teaser rate ends provided interest rates don’t increase, our house payment will jump up to $145.83 a month.
Paying Off Our House:
With continuing to pay $870 a month and with a $10,000 end of year payment on the house our balance will drop to around $20,000 at the end of 2020. Once again, assuming interest rates stay the same our house payment will drop to $83 a month. The goal at this point entering 2021 is to pay off the house in full during 2021. I’d like to make the last payment as a 35th birthday present to myself in mid May so we will see if I can make it.
This will also come really close to being 15 years total of having a primary mortgage. Mrs. C. and I bought our first house in September of 2006. We have since refinanced that house 3 times and most likely this house which is now a rental will be the last house we pay off.
We are buying low cost rental houses to follow the BRRRR method (Buy Rehab Rent Refinance Repeat). We buy a low cost distressed property with our heloc, which allows us to make a cash offer with no financing contingencies. This saves on the cost of the home and on closing costs. It also allows us to buy homes that a bank would not lend money on. The next step is to rehab the property to liveable condition, then rent it out. After it has been owned for 6 months we can refinance based off of a new appraisal value, and should be able to get most of, if not all of our cash back. As an example, say we bought a house for $24,000, put $6,000 into the rehab, then rented out for $900 a month. This house should appraise at $55,000, giving us a 75% LTV of $41,250. Minus closing costs would give us $38,250. We would have the house on its own loan and after paying back the $30,000 on the heloc would have $8,250 left over, effectively having no cash in the deal.
Although for the first few houses we will use our heloc to fund these houses and refinance them later, once our house is paid off we plan to self finance multiple rental houses at a time. We are hitting around $30,000 per house all in. With our heloc we can finance 4 houses at once. Since we are hitting a 25% cap rate, effectively with 4 houses we could cash flow paying 1 off each year, and buy a new house every year on our heloc, with no need to refinance them. Refinancing costs around $3,000, which is a big percentage chunk on a $30,000 house. Avoiding this cost increases our margins further.
What do you think of my $75 house payment and my plans for my Heloc? What is your house payment? Any plans to pay it off early?