Deductible

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One of the great things about homeownership is the ability to take advantage of money saving tax breaks, such as property tax and mortgage interest deductions.

These deductions can greatly reduce the cost of homeownership for taxpaying individuals who itemize their deductions.

But what about other common costs, such as mortgage insurance that so many homeowners tend to pay these days because they can’t muster 20% down?

Mortgage Insurance Isn’t Deductible in 2014

Well, thanks to the Tax Relief and Health Care Act of 2006 and the Mortgage Forgiveness Debt Relief Act of 2007, mortgage insurance premiums have been tax deductible since 2007. They are simply treated as home mortgage interest, according to IRS rules.

This applies to mortgage insurance provided by the VA, the FHA, the Rural Housing Service (USDA loans), and private mortgage insurance tied to conventional loans.

Later, the American Taxpayer Relief Act of 2012 extended this provision until the end of 2013 as part of fiscal cliff negotiations.

But it expired in 2014, and unless the Senate Finance Committee’s tax extenders package (EXPIRE Act of 2014) gains approval, homeowners won’t be able to deduct private mortgage insurance or any other mortgage insurance premiums paid this year (or next).

If it does pass, it will apply to mortgage insurance premiums paid in 2014 and 2015.

While the savings may not make or break a homeowner, it could amount to hundreds or even thousands of dollars in potential costs annually.

Stop Extending It and Just Make It Permanent

Though homeowners have been fortunate enough to benefit from extension after extension, the uncertainty clearly doesn’t allow homeowners to budget properly.

It also clouds the decision of whether paying mortgage insurance is a good idea or not. After all, you don’t really know the true cost.

Enter Devin Nunes (R-CA), and co-sponsor Joseph Crowley (D-NY), who introduced H.R. 4845 in the House of Representatives on June 11th.

The bill aims to amend the Internal Revenue Code of 1986 so mortgage insurance premiums are permanently deductible. This way homeowners won’t have to worry about the bill getting extended each year.

It still has a long way to go, but it could mark a huge victory for the mortgage insurance industry, seeing that it will make the option of taking on PMI a lot more attractive. At least it can be sold that way…

This is especially important seeing how expensive mortgage insurance premiums are on FHA loans nowadays, making them less affordable than conventional loans in some cases.

And with so many prospective homeowners looking to the FHA, or other low-down payment options, this could be a real lifesaver.

The bill is in its infancy, and has just been referred to the House Committee on Ways and Means.

There Are Still Deduction Limits

Keep in mind that even if this bill becomes law, or the tax extenders finally come to fruition, there are still limits on the MIP deduction.

As it stands now, you can fully deduct mortgage insurance premiums if your adjusted gross income (AGI) is $100,000 or less, per the IRS. However, the mortgage insurance must be associated with home acquisition debt on a main or second home.

It then gets phased out at 10% per $1,000 in income up to $109,000 in AGI, after which point it can no longer be deducted.

Contact your CPA or tax preparer to determine if you can deduct mortgage insurance premiums assuming any of these bills extend the deduction into 2014 and beyond.

For the record, a two-year extension is expected to cost $1.85 billion over 10 years, which makes it abundantly clear why its passage is not guaranteed.

Source: thetruthaboutmortgage.com

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Hello! Today, I have a great debt payoff story from a reader, Ashlee Binderim. This is how she paid off $162,000 in debt. Enjoy! When you get married, you’re supposed to ride off into the sunset and live happily ever after, right? Well, not for us. That “honeymoon phase” came to a screeching halt when…

Hello! Today, I have a great debt payoff story from a reader, Ashlee Binderim. This is how she paid off $162,000 in debt. Enjoy!

When you get married, you’re supposed to ride off into the sunset and live happily ever after, right?

Well, not for us. That “honeymoon phase” came to a screeching halt when we quickly realized our financial situation wasn’t ideal (to say the least).

Let me set the stage for you – we were in our early twenties, still going to college full-time, and working part-time jobs when we said “I do”.

We were barely making ends meet and money was really tight.

We knew that we were walking into this marriage with debt, but we didn’t actually know how that would impact our financial future. 

My husband was in that sweet spot where his parents made too little money to send him to college but too much money to qualify for financial aid. This resulted in him taking out $150,000 in student loans.

During his time in college his student loans accrued $15,000 in interest. Bringing his grand total to $175,000 in student loans.

I put myself through college and was able to qualify for financial aid and I also received some scholarships but it didn’t cover everything. I took out $11,000 in private loans and $20,000 in student loans. I worked part-time and was able to pay back about $10,000 while in college, leaving $21,000 that I brought into our marriage.

Finally, we decided to purchase a brand new car at $29,000. 

Bringing the grand total to: $225,000 in debt.

We were barely old enough to legally drink and had $225,000 in debt. 

With an income of less than $3,100 a month starting out, our debt felt like we were chipping away at Mount Everest with a pickaxe. 

These loans were holding us back in just about every area of life. We were already paying a mortgage payment for a student loan, so we knew that we couldn’t afford to purchase a house. 

We were trying to pay off debt as quickly as possible which meant investing took a backseat. 

We had to say no to just about everything that we wanted to do or buy. Especially during the first year of our marriage because we could barely afford to eat.

So, how did we pay off $162,000 in debt in 6 years? I’m going to walk you through year-by-year our income and approximately how much we put towards debt each year. 

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How we paid off $162,000 in debt in 6 years

2016 –  I made around $25,000 that year and my husband made $35,000. We brought in $3,100 a month – collectively. With rent on a small one bedroom apartment at $1,050 which is the cheapest place that we could find. That left us with $2,050 for the rest of our basic necessities. My husband and I were still in college so we didn’t have a student loan payment yet. We knew that we wanted to pay off debt as quickly as possible so we put all of our extra income (which wasn’t much) towards debt. That first year, we were able to pay off $13,800 in student loans. 

2017 – I graduated college and got a full-time job as an Instructional Designer where I made $51,000 a year. My husband worked part-time and attended college full-time. He made about $35,000 a year. Which brought our collective income to $86,000 a year or $5,100 take home a month. 

In 2017, we also moved from our apartment to a larger apartment. Well, apartment may not be the right word, it was the converted hayloft of a barn. We had an agreement with our landlord that we would do things around the property, like yard work, maintenance, and other miscellaneous things. This agreement meant that we only paid $760 for rent and utilities. 

We had to pause our financial goals for a couple months during 2017 because my husband was experiencing loss of vision which resulted in dozens of doctors appointments and specialists to diagnose a rare medical condition. Luckily, we had insurance with a low deductible so we only had to pay a very small amount out of pocket and any travel expenses.

That year we put $22,100 towards paying off debt and saving to pay off my husband’s student loans. 

2018 –  My husband graduated college and was hired full-time as a Project Manager for a construction company with a starting salary of $71,000. With my $51,000, we made a combined income of $122,000. After medical insurance, taxes, and retirement our monthly take home was around $7,500.

We refinanced my husband’s student loans from his parents name to his, because that was the verbal agreement that they had upon him entering college. 

Quick note from Michelle: Companies, such as Credible, help you to refinance your student loans. With refinancing, the average person can save thousands of dollars on their loan, and that’s incredible! You can save a lot of money with student loan refinancing, such as with Credible, especially if you have high interest federal or private loans.

The best interest rate we could get was 6.5% on $175,000 – which meant that over half of the monthly payment of $1,315 went towards interest. According to our student loan provider, we should’ve been in debt for 15 years but knew that we needed to get out of debt as quickly as possible. After doing the math, we were looking at paying over $135,000 in interest alone over the lifetime of the loans.This would’ve brought the total amount of the loan to $310,000 – which as you can imagine, we weren’t ok with. 

So, in 2019 we really buckled down and linked arms to make major changes to our finances and put everything we had towards paying off debt which also meant making some hard decisions.

We put $24,229 extra towards debt in 2018 on top of our monthly payments of $1,315 bringing the total towards debt to $40,009 (but remember, only half of our payment was actually going towards the principal). 

2019 – This year we got really serious about paying off debt. We were making the most money that we had ever made and we were honestly really tired of saying no to everything. We knew that it was going to take some hard decisions and we needed to refocus our priorities but we knew that it was going to be worth it in the end.

My husband and I both received a raise and were now making a collective $139,000 a year. Monthly take home was around $7,900. 

We cut back much of our spending in many areas including insurances, monthly streaming services, and we made one of the hardest financial decisions – we sold our car back to the dealership. 

It was a really humbling experience. The car salesman was pretty surprised that we wanted to sell our brand new car back but in just a couple of hours we paid off $21,393 and walked out of the dealership with a paid for car that ran just fine for $1,500. It didn’t have all the fancy bells and whistles but it drove and meant we were able to achieve our financial goals faster. I still drive this car around today and love it!

Again, we experienced another financial setback due to health issues. I received a diagnosis that required several specialized treatments that our insurance didn’t cover. Despite this setback, we were still able to knock down our debt. 

We put $57,820 in debt in 2019 alone (a big portion of that was the car that we sold back to the dealership).

Through our debt journey I learned that I really have a passion for helping other people reach their financial goals and decided to pursue a financial coaching certificate and started to build a financial coaching business. 

Because we were paying off debt left and right our credit score dramatically increased and we decided to refinance our student loans for a lower interest rate of 4% but kept our monthly payments the same.

Refinancing for an interest rate just 2% smaller drastically changed how much money was going towards the principle. We went from paying about $600 a month in interest to $250 from a 20 minute phone call with our student loan provider. 

2020 – I quit my job in February to pursue working full-time on my financial coaching business – our income took a huge hit as world events hit the U.S. in March of 2020 and I focused on helping people for free during this tumultuous time. Although we didn’t pay off as much debt as we wanted to, I knew I was helping people gain some semblance of security during an unprecedented time and that was worth our financial goals taking a small backseat.

By November we were under $100,000 in debt and for the first time our debt finally felt more tangible and like we were making serious headway in becoming debt free! 

That year we brought in $106,000 and our monthly take home was around $6,000. We received several stimulus checks that we also put towards debt which really helped and my husband also received a company car which cut down on our monthly insurance payments and gas budget almost completely. 

In 2020, we put about $33,488 towards debt during such an unprecedented time which we were very grateful for making any progress towards our goals because we knew that wasn’t the case for a lot of families out there.

2021 –  As of today, our income is around $112,000 with a monthly take home pay of $6,400. Now that we’re in the home stretch – we’re doing everything that  we can to pay off the remainder of debt. This year we’ve sold a travel trailer, small fishing boat, extra vehicle, and many other miscellaneous things around the house. I also started a fine art painting business to sell some paintings that I’ve done over the years.

We just refinanced our student loan again to get an all time low interest rate of 2.25% which will save us about $1,500 a year that will go directly to the principal instead of interest! 

Literally anything and everything we can do to pay off this debt – we’re doing it!

By the end of this year, we’re looking at approximately $42,000 in debt and we have a goal of becoming debt free by September 2022! 

As you can see, there were a lot of things that came up during paying off debt. But I wanted to give you a really clear and honest picture of what our payoff story looked like!

I feel like there’s a lot of stories out there that don’t show you the hard parts of paying off debt – which for us, there were several moments where we felt like we were stalled out and not gaining any forward momentum.

But, each and every month that we put money towards debt we feel just lighter, more secure in our future, and that much closer to hitting our goals. Despite the setbacks, it’s still worth it. 

Let’s dive into the three specific things that we did to pay off $162,000 in debt in 6 years and not lose sight of our goals. 

1. Get on the same page 

This is one of the most important steps that you can take if you’re married or in a committed relationship.

If you’re not on the same page with finances, you’re going to pull in opposite directions and make little progress.

But, when you both agree on working together and in the same direction, you’ll gain momentum faster and also hold each other accountable to achieving your financial goals. 

In order to get on the same page, I recommend that you sit down at the beginning of the month to create a budget and have that budget readily available to look at.

Hang it on the fridge if you need to.

This way it’s a constant reminder of what you’re working towards and will keep you moving forward together with momentum.

2. Set priorities 

You can’t accomplish everything in a year, so set your top 3 financial priorities that you want to focus on in that given year and only focus on those three things. 

For example, let’s say you make $65,000 a year and your priorities are paying off $15,000 in debt, taking a $4,000 vacation, and saving $3,000 in an emergency fund. 

You can’t, however, max out your retirement, Roth IRA, take 3 luxurious vacations, save $100,000 for a down payment on a house, and do everything else that I mentioned above.

It’s just not feasible. 

Not only that, but you would be setting yourself up for failure because your goals are not realistic and probably would feel very overwhelming and limit you from taking any steps forward.

By focusing on our top three priorities, it helped us to say no to things that didn’t fit into our priorities and kept us on track to hitting our financial goals.

3. Still have fun

As a financial coach, I’ve done a ton of research on human psychology around money. I’ve learned that your brain’s sole job is to keep you safe – to your brain, that means the same.

Because anything different from what you’re doing is scary, uncomfortable, and maybe even a little painful and your brain will do anything to make sure you don’t feel those feelings to keep you safe.

So, let’s say that you have a goal to pay off $50,000 in the next 2 years.

In order to do that, you will likely have to do a couple of things: ask for a raise, cut your spending back, sell things around the house you don’t use anymore, or pick up a side job.

All of these things are outside of your normal routine which means the brain goes on high alert and you might feel stressed out.

When you feel stress over something, your brain will try and keep you from feeling those uncomfortable emotions so it’ll have you focus on something else instead.

When you feel stress, your brain will get you to do something else that brings you happiness or at least procrastinating from the feelings that you’re feeling – like scrolling on social media, binging Netflix, eating that pint of ice cream, etc. Then you feel stress that you didn’t make any forward progress and you rinse and repeat.

Achieving your financial goals doesn’t have to be so difficult when you help your brain understand the benefits to achieving that goal.

To circumnavigate human psychology, it’s important that you still have fun while you’re going after your financial goals. I’m not talking about taking a luxurious vacation every month.

But I am saying that you need to set aside a little money to have fun! This will actually help your brain adapt to new habits and help you achieve that financial goal faster because you’re not fighting against your brain.

It also helps to know that it’s going to be a marathon, not a sprint.

Financial goals, especially large ones, are going to take some time. Unless you win the lotto (that you likely don’t even play), it’s going to take an extended amount of time to accomplish your goals and that’s a good thing!

Long-term financial goals can teach us the importance of patience, delayed gratification, and finding joy in the little things.

This can be translated to everyday life. You learn to say no to the little things because you’re so focused on the long term goal.

Because my husband and I have paid off over $162,000 in debt we know that we can tackle any financial goal that we set for ourselves and we’re actually stronger and a better team because of it!

There are several areas where we saved money that might help you as well – 

  1. Car insurance – We were able to lower car insurance by shopping around regularly. If we felt like our car insurance was too expensive or when they raised the prices after a year, we would shop around for a better quote. On average we save $700 a year by shopping around.
  2. Phone bill – We switched from Verizon to PureTalk to cut our phone bill by $120 a month! Now, I only pay $31 a month for the same service. 
  3. Sold stuff – We sold many many things over these 6 years. We sold a total of 4 cars, a travel trailer, small fishing boat, furniture, vegetables from our garden, old artwork from college, and many other things that I’m sure I’m forgetting! 
  4. Get creative with housing – The housing market is insane right now so I know how hard it can be to find affordable housing. When you think outside the box and find creative solutions you’ll be surprised with how much money you can actually save. You can live in a mother-in-law suite, buy a trailer and rent someone’s backyard to park it on, live in a van, or do a work-trade for discounted housing like we did. 
  5. Refinance student loans – A fun fact about student loans is that you can refinance them as much as you want to. We refinanced our student loans 3 times to get a better interest rate and it’s usually pretty painless.

When we first refinanced our student loans the best interest rate that we could get was 6.5% meaning that about $600 a month was only going towards interest and not even touching the principle. When we refinanced our student loan again a year or so later we were able to save about $350 a month!

As you can see our journey in paying off $162,000 in debt wasn’t a clear path.

It had bumps in the road, things came up that we couldn’t foresee and that’s okay. That’s life! But, you shouldn’t let those bumps completely halt your progress.

We never exceeded $140,000 a year in our income and were still able to pay off our debt in half the time. I’m not saying that it’s easy, but it’s possible. We got on the same page, focused on our main priorities and still had fun in the process.

We’ve traveled to Texas, Montana, Oregon, Utah, Colorado, Nevada, Washington, and California while paying off debt. 

I hope that reading through our journey to paying off $162,000 in debt has been inspiring and given you hope. 

If you want to watch our journey to become financially free by September 2022 and pay off $63,000 in debt, you can follow us over on Instagram where we’ll be giving regular updates! 

Author bio: Ashlee and her husband started their marriage with over $225,000 in debt. They were both working part time, going to college full time, and barely making ends meet. After years of struggling they finally figured out how to link arms and tackle financial goals together. Current debt payoff: $162,000 to date! Now, she’s a certified financial coach and on a mission to help other couples reach their goals by getting on the same page with their finances so they can set up a secure future. You can find her on her website Beyond Millions as well as on Instagram.

Do you have debt? Are you trying to pay it off?

Source: makingsenseofcents.com