making money work for us

It's terribly gauche to talk about money in public (unless of course you are a moneyblogger). But this blog, as I told Don when he got mad at me for posting embarrassing pictures of our backyard, is supposed to be about reality. And part of the reality of homeownership -- probably the biggest part, in fact -- is money.

We've been very lucky when it comes to money. Part of this is because Don is very, very good at managing our money (I'm trying to convince him that he ought to get an MBA instead of a JD when he goes for a graduate degree). Part of it is because we are fortunate enough to live in an area where jobs are relatively plentiful, and we were able to find jobs which pay very well, particularly for as young as we are. Finally -- and this part is nothing but sheer, dumb luck, no matter what Don tries to tell you -- we stumbled into a very hot market when we bought our first house, and were able to sell it less than two years later for double what we paid for it. So yes. Moneywise, we have been lucky. But we also do a lot to make the most of our money, and that's what we did this weekend.

The background:
We bought our house in January, with what's called an eighty-twenty mortgage. What that means is we actually have two mortgages. One is for eighty percent of the value of our house, and is a standard thirty-year fixed rate mortgage. The second is for twenty percent of the value of our house, and is a shorter fifteen-year mortgage. The second mortgage has a fairly high interest rate -- not sky-high or anything, but high. Having the second mortgage allowed us to have a much lower interest rate on the first mortgage. Our ten percent down payment paid off half of that second mortgage immediately, and we have had enough money at any given time that, if we needed to desperately, we could have paid off the second mortgage in full (we still have a lot of the profits from the sale of the house). So. The remaining debt from the second mortgage added up to about 22 thousand dollars.

Our next significant debt was for our two cars. Mine is a new car, and was a birthday present last year (my old car conveniently expired right in time for my birthday). We bought Don a lightly used car last month, when his car finally died. We bought used for him rather than new because this car is intended to be a commuter car, used heavily for five or six years until we can afford the BMW that he really wants. The debt for the two cars together adds up to about 32 thousand dollars.

Finally, we had some credit card debt. It was the remainder of the debt from our first large purchases as homeowners in the townhouse, a TV for him and a dining room set for me. They were purchases we thought out well, not impulse buys, and we planned out how to pay for them over the course of a period of time well before we bought them. The payment plan was interrupted slightly by Don's two months of unemployment earlier this year, but otherwise stayed on track. The remainder of that debt was about four thousand dollars.

The interest rates on all of these debts ranged between nine and twelve percent. Not great, although not exactly debilitating.

What we did:
On Saturday morning we signed off on a home equity loan. The loan lumps all of these debts together at an interest rate of 6.74%, saving us more than five hundred dollars a month. We make one payment a month, to the bank, instead of four or five to the various creditors.

The five hundred dollars we will be saving will be applied directly to the loan. Since we currently pay that much anyway, we won't exactly notice the lack -- and if we desperately need wiggle room, we have it, since any money over the minimum payment is our choice to pay or not. Don intends to add a little more to the payment as well, since he is making more income now than he was when he wrote the budget for this year. This will double our loan payment every month, and have our ten-year loan (which, remember, includes our fifteen-year second mortgage!) paid off in five years.

And that's how we are making the most of money management.