Done To Zen

I spent about an hour with my mortgage lender, trying to convince them to let me do my own escrow. I had already dealt with the whole shebang once before. About a couple of months ago, I found out that I could do my own escrow, and I immediately contacted my bank regarding the procedure to cancel my escrow account.

My bank made it sound like they were actually going to let me do it without forcing me to negotiate a war course, but surely I knew better. My call to the customer service ended with a bad feeling, and I was right. Instead of what I was assured would almost certainly be a confirmation letter, I get a rejection letter instead. It was clearly a template, because not all of the reasons listed in the letter applied to me.

Try Number One

I woke up today morning and felt like trying again, so I called the customer service hotline and waited in line for a couple of minutes. The representative who picked up the call was a American-sounding woman with a nasal voice that was barely decipherable. In my sweetest voice, I explained to her that I know all about the requirements but is it possible to make an exception in my case, please? After about half an hour, the only thing I could get out of her was that she was going to request for cancellation, which could result in approval or denial. I thanked her and went back to my lunch.

Try Number Two

I decided to try again after coming home after work. This time a guy named Robert picked up. He repeated his name and tagline three times (I guess he thought the connection got dropped/was unstable or something). I talked to him for an hour and once again explained everything. He offered to put in a request. I declined, informing him that I had already tried that route. I asked him if I could be transferred to someone who had the authority to approve or deny escrow cancellation (he didn’t, of course). No, there were absolutely no numbers that he could transfer me to. Could I talk to his supervisor? No, it wouldn’t matter, because his supervisor wouldn’t be able to do anything, either. I thanked him for his time and he said something about how the bank appreciates my business. I hung up in disgust.

Try Number Three

I had to pay my mortgage today (because the 1st was Labor Day and I was out of town over the weekend), so I headed over to my bank with their slip and my checkbook in hand (yes, I still pay manually; my checking account is in a state of flux presently, and I don’t want to accidentally overdraw). As I waited in the short line, I decided to once again try to get rid of my escrow account. Maybe a face-to-face conversation would have better results?

I paid my mortgage and explained to the teller that I’m looking to get rid of my escrow account. He had no idea what I was talking about, so I ended up waiting about five minutes for a personal banker to turn up. I told him that I wanted to do my escrow. He had no idea what I was talking about and so he went in search of another personal banker who was more knowledgeable than him. I talked to the lady, but she had no idea what I was talking about either. She kept trying to get me to set up an automatic payment, saying I’ll have full control over exactly where my money is going. I had to explain to her ten times before she understood that I wanted to pay the city directly, not through a middle man (i.e., the bank). She said she didn’t think it was possible; I assured her that it was. She went in search of a mortgage specialist and so we ended up chatting about her kids for ten minutes (specialist was on phone with customer). Finally, the guy turns up and informs me that there is nothing he or anybody else at the bank can do about escrow. Yes, he does his own escrow, too Yes, he understands that I’ll be better off doing my own escrow. Yes, he understands that my property was valued much higher than my purchase price. No, he can’t do anything. I’ll have to call customer service and negotiate with them.

I thank them and leave for home, disappointed.

For now, it looks like my bank won.

Why escrow myself?

There are several reasons for why I want to escrow myself. The main reason is that I my monthly payment goes down by a lot. To be sure, I’ll still have to save the tax amount each month, but this will go under “savings” until I have to pay the taxes twice a year. The payment to my bank goes down by about 12.5%, so it’s pretty significant, not to mention that I hate the idea of giving anyone an interest-free loan. On top of this, I’ll be earning interest by saving the money in a high-interest savings account. The interest isn’t going to break any records, but it’s passive income all the same, and when you’re just starting out building your passive income, every little thing helps.

When can I escrow myself?

I’ll have to wait at least a couple of years, unless I pre-pay my mortgage by the required amount, that is. I only recently bought the house and I did not put 20% down; I only put 5% down, but because it was my first house, I got a nice deal where I didn’t have to pay PMI for a slightly higher interest rate.

One of the requirements to cancel my escrow account is to have at least an 80-to-20 loan-to-value ratio. I’m currently pretty far from this ratio, so it will take me at least three years to get the loan down to 80%, assuming that my house’s value stays the same. If it goes up, all the better. If it goes down, as is likely, it will be worse.

Pre-pay mortgage until I can escrow?

I was considering this somewhat seriously over the past couple of months, & especially over the past week or so. It will be awesome to not have any debt, but the truth is that it doesn’t really make any sense to put everything into my house. Liquidity is much more important for me, and, besides, I want to have a diversified portfolio to reduce risk, take advantage of higher-interest investments such as stocks, etc.

So I guess I’ll just have to grin and bear it for the next three or four years it will take me to get to 20% equity.

Not all is lost, though.

I purchased the property for over ten thousand dollars below what the city thinks it’s worth, so I contested the valuation with my city. They were very nice about it. I just had to contest through an application, and they replied back within a week informing me that the city will accept my new purchase price as the market value starting next year, so property taxes will go down next year! Of course, the change isn’t much per each month, but it’s there, all the same. :-)

I’ll try again when I have a 85 - 87% loan ratio.

I should have a longer on-time payment history by then and my loan ratio will also be closer to the required amount, so they may be willing to make an exception in my case. But that will take more than a year, too, so nothing in the works for 2009. Unless I prepay mortgage by a small but noticeable amount. We’ll see…

Wouldn’t it be great to write off moving expenses? You can do just that if your move passes the 50-mile test and it is work-related. What is the 50-mile test? I’m glad you asked. It’s a convoluted rule that Congress came up with to ensure that your move is necessary and not a way towards an easier commute.

To figure out whether you meet the 50-mile test or not, look at how far your old office was to your old home and add 50 to it. So, if you lived 10 miles away from your old workplace, your new workplace should be at least 60 miles away from your home.

Work-related means that you moved because of work and not because you wanted a change of scenary.

First, moving expenses generally are deductible if incurred within one year of starting a new job. Secondly, you have to work full time at a new job for at least 39 weeks during the first 12 months. The worked weeks don’t have to be consecutive or even with the same employer. BankRate

Eligible moving expenses

You can write off things like transportation costs (ex., the mileage if you drove a car to the new residence), cost of shipping personal effects from your home, cost of shipping personal effects from some other home, cost of packaging items to be moved, lodging costs (both at the location of your former residence — within one day of moving — and your new place).

Ineligible moving expenses

You can’t write off the cost of selling your old home or the cost of finding a new place of residence. If you ate out during the trip from the old place to the new place, you might love the meal but you unfortunately cannot write it off.

Another thing to keep in mind: you can only write off what you spent. If your employer is reimbursing you for relocation expenses, then you can’t write off that amount. But if it cost you $3,000 to move but you only got reimbursed for $2,000, then you can write off the $1,000.

I was doing research over the weekend about taxes. Increasing income is one way to have more money (to save), but any reduction in expenses is another (possibly better, psychologically-speaking) way to have more money, as well. Here are some important tax terms that I came across in various articles.

1. Adjusted gross income: adjusted gross income (AGI) is your total income (from salary, rent, that side business, earned interest, royalties, Adsense, etc.) minus any adjustments (such as contributions to 401K or a qualified IRA). As taxes are calculated with AGI as the base, the lower the number the better.

2. Deductions: you can further lower your taxable income by subtracting a variety of expenses from your AGI. Home mortgage interest, depreciation on investment properties, student loan interest, moving expenses, donations to charities, and local taxes are all deductions that can be subtracted away from your AGI to result in a lower taxable income.

3. Standard deduction: this is the fixed dollar amount that you can subtract from your AGI and depends on your status: are you single, married, head of household, have dependents, etc. According to IRS, the standard deduction is $10900 for married couples filing jointly, $5450 for singles or married couples filing separately, and $8000 for heads of household.

4. Itemized deductions: these are the aforementioned deductions that you can claim to lower your tax bill. If you have more qualified expenses than the standard deduction, then it makes sense to itemize your deductions. So, for example, if your total itemized deductions is $6000 and you are single, then you will be able to reduce your taxable income by $550 by itemizing your deductions instead of claiming the standard deduction.

5. Exemptions: like a deduction, an exemption reduces your taxable income. Exemptions are typically granted for activities that the government wishes to promote. For example, donations to charities are exempt from taxes. You are also able to claim exemptions on yourself, your spouse, and your dependents (if you are filing as head of household). Each exemption is worth about $3300, so if you are filing as a head of household with a spouse and three children, you are able to claim $16,500 in tax exemptions. However, these are the amounts that can be claimed only if your AGI is lower than a certain dollar amount (around $150,000 for singles and $225,000 for married couple).

6. Taxable income: this is the final income on which taxes are calculated. This is your AGI minus whatever deductions and exemptions you claimed.

7. Tax credits: tax credits are different from deductions. Instead of reducing your taxable income, they reduce the tax, itself. So, if after all the deductions, etc., you calculate that you have to pay $8000 in taxes, and you have a $2000 tax credit, then the tax you have to pay is $6000. Tax credits are nice because to get that $2000 difference through deductions requires you to decrease your taxable income by a great deal.