Insights from Mint.com

Going over my Mint.com trends for the past couple years, I noticed a few things I thought were somewhat cool. In no particular order:

• 75% of my out-of-pocket expenses are for housing and communications - mortgage, property taxes, insurance, and all utilities including TV, Internet, and phone.
• I spend more for Verizon Wireless than I spend at Walmart. To be fair, my Verizon bill covers five people. To be unfair, Walmart covers the majority of my grocery expenses and cat food and litter. To be fair again, I eat out quite a bit, so groceries are cheap.
• I will also spend more for Verizon Wireless than I spend on eating out, once figures include a full 24 months of Verizon bills.
• I spend a lot at Chili's ($800), and it is probably worth getting any discounted gift cards I see.
• My expenses have actually gone up since I've started paying attention to them. Every month, I've spent more in 2010 than 2009. I've also had more cash on hand.
• It's very important to set up renaming rules right when the name of a merchant changes for whatever reason. From that point on, it becomes automatic.
• Rollover budgets are great in theory, but end up making the overall totals meaningless as they drift way negative or way over budget. Really, the budget feature itself is not as informative as the Trends tab.
• "In the past 30 days, you spent $309.62 on Clothing. Usually you spend $9." That $9/month is inflated because it includes a tuxedo rental and a bunch of clothes that weren't actually mine. In other words, I spend very little on clothes.
• It is also important to realize tax refunds are income that the government held for you, and not taxes. Assigning tax refunds to the 'Taxes' category can result in negative spending for the month, which looks awkward.

Q&A: What's My Effective Mortgage Interest Rate?

When you sign and initial the hundred or so times required to purchase a home, chances are good that you wind up with a mortgage to go along with the property. That mortgage has an associated interest rate that is used to calculate how much you're charged each month, but it isn't always an accurate measure of how much you pay, in the end. (The mortgage also has an advertised APR that includes points, lender fees, and any applicable PMI thanks to the Truth in Lending Act. Honestly, I've never found the APR that helpful, and it definitely isn't helpful in this discussion - we need to look at the base interest rate.) The net interest you pay depends on your tax situation, and results in what I call your effective interest rate (not to be confused with the more official effective annual interest rate - new name suggestions are appreciated!).

Mortgage interest is tax deductible, which is great in theory, but it doesn't always help very much, if at all. Individuals get a standard deduction of $5,700, and married couples filing jointly get $11,400. If your mortgage interest isn't greater than whatever standard deduction applies to you, then the mortgage interest deduction doesn't help you on its own. You may have other deductions like qualified medical expenses, 401(k) contributions, charitable giving, and the like. If you have a mortgage, chances are good that you have an income and pay state and/or local income taxes, and chances are even better that you have property and are paying real-estate taxes, both of which are deductible. With these deductions, the mortgage interest deduction can be more beneficial.

My medical expenses are well below 7.5% of my adjusted gross income, so those are not deductible. My 401(k) contributions go into a 401(k) ROTH account, so they are not deductible. I have some donations and the occasional miscellaneous deduction, but my main deductions are the state income and property taxes I pay. In the end, most of my mortgage interest winds up being deductible. That means I pay a lot of state and local taxes, though, so that's not entirely a good thing.... It doesn't apply to me this year, but your deduction can also span tax brackets, making the calculation that much more complicated. Some of the deduction may save you 28%, while some may save you 25%, for example.

The amount actually deducted (we can call it the effective deduction until a better suggestion comes in) affects the effective interest rate you pay. For a 5% mortgage with outstanding principal of $200,000, your interest payments will be around $10,000. Say you contribute to a 401(k) and so can deduct all your interest and are in the 25% tax bracket. You effectively reduced the interest paid by 25% * $10,000 = $2,500. You are now paying a net of $7,500 for an effective interest rate of around 3.75%.

Because I'm such a fan of calculators, I just couldn't resist making another one!

Interest Rate (%):
Interest Paid ($):
Interest Deducted ($):
Tax Bracket (%):

Mortgage Refinance Completed

On Wednesday, May 20, 2009, I completed my first mortgage refinance using United Home Loans. I stayed with a 30-year fixed mortgage, but was able to reduce my interest rate down to 4.625% and save $176.51/month on my monthly payment. The process will have increased my principal by ~$5000, but a lot of that is the interest for the month of May that I rolled into the new loan, a quarter point for waiving escrow, plus some money back to ensure that I didn't have to mess with getting a cashier's check. The closing costs were comparable to the other places I looked, and the rates were quite competitive.

Most importantly, yesterday marked one of the worst days in the MBS (mortgage-backed securities) market, which resulted in rates climbing into the 5.25%-5.5% range. I timed my closing pretty well! The site I follow, Mortgage News Daily, seems to think rates will come down again this year, but it's a whole different feeling to follow the MBS market when I have no direct financial stake in the matter.

A couple people have expressed surprise that I decided to waive escrow, seeing how it cost me .25% of my loan amount. I did some number crunching before coming to this decision, and in my case it definitely made sense. First, I had just paid property taxes, and my insurance doesn't have to be renewed until December, yet they were going to collect 6 months worth up front, or about $3000. I don't think I'd like to pay $3000 out of pocket now if I don't have to, which means I probably would have rolled that cost into the new loan amount. A $3000 loan equates to $15.42/month in extra payments, which means I will recoup my escrow payment in about 3 years directly. That .25% is listed as a discount point, though, which means its tax-deductible. I also get some interest on the $3000 that can stay in my savings account (I actually used it to max out my Roth IRA for the year, so hopefully that will result in even better returns). I also keep the flexibility of scheduling my property tax payments. This gives me the opportunity to shift my tax burden between years a bit by paying either half or all my property taxes in December. Mostly, I don't like the idea of giving my money to somebody and getting nothing out of it, so there is psychological value for me in waiving escrow.

Some of the closing costs are offset by not making a payment in the beginning of June (at the cost of increased principal, of course). This will mean $1500 extra into my pocket this month. I think I will lower my payment to $1400/month on my new loan, however. This will mean an extra $100/month for me, but still be prepaying my mortgage faster than I was on my old loan. Here, I'm fighting the strong psychological benefit of paying off debt with the intellectual knowledge that prepaying on a 4.625% (tax-deductible) loan almost certainly is not the best use of my money. I just love seeing the balance jump down!

One year

I've been in my house for a full year now. I officially bought my house on April 30, 2007. The anniversary went by only vaguely recognized until today. I don't have any deep thoughts regarding homeownership, but I figured I might as well recap what I've learned about it in roughly 366 days (leap year!).

• Maintenance expenses can be higher that you think. There is insurance, lawn care, pest control, utility bills, and property taxes.
• Furnishing a house can be expensive. After a year of payments, even, I'm still ~$5000 in debt to Nebraska Furniture Mart (thankfully at 0% interest).
• When you opt not to escrow your insurance and property tax payments, they can catch you by surprise.
• Living in a house is more fun when someone else is around, too.
• Mowing the lawn sucks, even when it's your own lawn.

I had more, but I forgot about this post until now. Add to it in comments!

Taxes and budget

I'm pretty much officially done with taxes, now. It's quite the good feeling.

What's even better is that taxes were much simpler this year than last. TurboTax got their shit together and improved the importing feature to make it actually useful. I had to manually enter in all my options trades from E*TRADE, though, because those aren't required to be reported to the IRS (by E*TRADE), so it's up to me to do it. Still, things went much smoother this year. I only cursed once or twice!

The final tally is that I owe $1527 to the federal government, and $1416 to Missouri, but get $775 back from Kansas. Unfortunately, this comes at the same time as both my auto and home insurance policies need to be renewed. I'm talking with my insurance agent next week, but it's going to be around $2000 for the year. My server upgrades and some clothing purchases, plus discounted software purchased as part of my Microsoft trip (in addition to all my regular spending) results in an ~$1300 credit card bill this month. Then I have to pay my second half of 2007 property taxes (~$2150) by May 12. It's all hitting at once, and I'm down to my last $1-2000 in cash, which is below my comfort zone. I was so looking forward to buying a new main computer!

Multiple E*TRADE accounts

A couple posts ago, I commented on my spending discipline. I just took a step to help me maintain that discipline. I opened up a separate bank account just for emergency funds.

I used to have a E*TRADE Bank Complete Savings account. It has solid features and a high yield - beating Bank of America CDs, for example. The interest rate applies to every dollar in the account - it's not tiered. Now I have two! E*TRADE is kind enough to allow people to open as many as they want, it would seem. The interesting thing is that this basically eliminates the limit of 6 withdrawals a month because you can always transfer money over to another savings account and withdraw from that.

I have never hit the withdrawal limit, so that didn't enter into my thinking when I set up the account. I was just thankful to have the option to create a separate bank account with just as high of an interest rate. I can rename it to "Do not touch" or "Emergency Funds" or whatever else will make sure I'm not tempted to spend it. I then set up an automatic transfer from my old savings account (which gets my direct deposits) to my new one. Now I'll always have enough cash on hand in case I otherwise forget to set aside cash (say, for property taxes or insurance). Thanks, E*TRADE!