Monthly Money Mistake – October 2019 – Waiting too long to renegotiate a mortgage
Reflecting back on my monthly money mistakes I’ve started to see a bit of a trend. A lot of my mistakes and areas of improvement related to food.
I’m not totally surprised by this as food is a variable expense that can fluctuate month to month. It is also something that I consume daily and therefore interact with a lot. There is a lot of potential to do things right when spending money on food, but there is also a lot of potential to overspend, especially for convenience.
Last Months’ Money Mistake Follow Up
Last month’s money mistake was not paying attention at the grocery store. Thank you to everyone who commented with feedback and different strategies to try.
Related Post – Monthly Money Mistake – September 2019
I’m happy to report that this month was a lot more manageable from a time perspective. We did not eat out nearly as much, which meant we stayed home and cooked a lot of our food. This was a huge improvement on July’s monthly money mistake.
It’s amazing how just being aware of something can help to change it.
Related Post – Monthly Money Mistake – July 2019
Because we ate at home a lot more this month there was also a lot more grocery shopping to do. We got smarter and more attentive with our grocery shopping this month and paid attention to sale and item prices.
We were out and about a lot this month so stopping by a grocery store here and there to pick up a few things that were on sale was not an extra hassle or that much out of our way. Because we weren’t so busy it made it easier to find time to grocery shop effectively.
All that being said, this month’s money mistake does not relate to food. My monthly money mistake for October has to do with some of the mortgages on our investment properties.
One of our investment strategies is buying and holding single-family homes as investment real estate. We currently own and self-manage 9 rental properties and have mortgages for them at various banks.
Variable Rate Vs Adjustable-Rate Vs Fixed Rate
Some of our mortgages are variable rate, some are adjustable rate and some are fixed-rate mortgages. So what’s the difference?
|Monthly payment stays the same throughout the term||Monthly payment fluctuates with interest rate fluctuations||Monthly payment stays the same throughout the term|
|As interest rates change the amount going to principal and interest also varies||As interest rates change, the amount going to principal and interest stays proportionally the same due to fluctuations in the monthly payment amount||Interest rate is locked in throughout term, interest rate changes have no effect on monthly payment to principal and interest.|
There are a lot of factors that go into deciding what type of interest rate you should select with your mortgage.
The mortgages in question this month are our variable-rate mortgages. At the time that we got these mortgages, we thought we were getting adjustable-rate mortgages and didn’t know that there was a difference between a variable rate and an adjustable-rate. But as you can see from above, there is.
The difference between variable-rate mortgages and adjustable-rate mortgages is, when the interest rate changes, the payment for an adjustable-rate mortgage also changes. The disadvantage of this is that now you have a larger payment to account for. The advantage is the amortization period of your mortgage doesn’t change and you are still putting a large chunk of your payment onto the principal every month.
Effect of Changing Interest Rates
When we got our mortgages, the interest rates were very low. The prime interest rate has since increased. This has greatly affected the amount of our monthly payment that is going towards mortgage principal every month.
Our goal is to eventually pay off these mortgages, so we want as much of our monthly payments as possible going towards the principal and not losing it to interest.
We knew this spring that fixed mortgage rates were lower than variable rates for the first time in a long time. I called one of the banks that is holding some of our mortgages and was able to negotiate a lower interest rate than we were previously paying.
But the monthly payment still went up.
For the past year or so we were paying so much on interest and not enough on the principal that it had affected the overall amortization period of the mortgage. By renewing into a fixed-rate mortgage, the monthly payment went up slightly, but it realigned the overall amortization period.
Even though the monthly payment went up a bit, the amount going to principal pay down every month went up substantially. This is a good thing and will help us pay down those mortgages.
Here comes the mistake
Calling the bank and renegotiating the terms of one of our mortgages was a very financially smart decision. But I only did that for one of our mortgages, not the other 2 being held at the same bank with the same terms.
It took me 3 more months to finally call the bank back and renegotiate the other 2 mortgages.
Why did it take me so long?
I’d like to say that I have a good reason, but I don’t. We were thinking about moving them to another bank potentially for a better rate. But with the size of our investment portfolio, this can be very difficult in today’s lending environment.
I was holding off waiting or something better to come along instead of being happy with what was right in front of me. Kind of sounds like trying to time the market doesn’t it?
Procrastination never pays off.
That is what this month’s money mistake boils down to. Had I not procrastinated on renewing those mortgages at a better rate, I would not have lost hundreds of dollars to interest over the past few months.
From the above image, the change in mortgage terms added just over $200 to our net worth, every month. For 3 mortgages that would be over $600. Waiting too long to renegotiate these mortgages cost us over $1000 in net worth accumulation.
The downside of procrastination is a lesson that continues to come up in my life. This is the universe telling me I have yet to learn this lesson.
This is a good lesson that not only applies to this month’s money mistake. How often do you sit on the sidelines waiting for something better to come along instead of enjoying what’s right in front of you?
More than just this Month’s Money Mistake
It is easy to get caught up in striving for financial independence, that we miss all of the great things along the way. I’ve often caught myself saying something like “when this is over things will get easier” or “I just need to do this one thing and then things will get better.” When in reality there is always something else that gets in the way.
I could have continued to wait until my mortgages were up for renewal early next year and then tried to move them to another bank. But like I always tell my students, if I could predict the future I wouldn’t be working here. I don’t know what mortgage rates will be like next spring. There is uncertainty around the fact that I don’t know another bank will let me transfer my mortgages.
What I do know is that when I renewed one mortgage with a bank I was able to get a good rate and good terms. That should have been enough for me to renew the other 2 mortgages at that bank too. I don’t need to get the best of the best rate and terms ever. I just need to get a rate and terms that will work to keep the properties cash flowing.
Although the particulars of this month’s money mistake will not happen too frequently, there are still some action steps to take moving forward.
- Avoid procrastination (easier said than done).
- If there is a particular task that needs to be completed, do so and avoid putting it off until tomorrow. I’m really going to try focusing on this month.
- Take some time this month to reflect on what is going really well right now, instead of always looking forward
- Start watching mortgage rates the year before any upcoming mortgages are coming due. That way when I see favourable rates and terms I will be ready to act.
Bringing attention to my mistakes and coming up with a plan to correct them going forward has the potential to have a great impact. That is one thing I have noticed since tracking my monthly money mistake. If I just put a few of these action steps to use every month by the end of the year my financial picture will be drastically improved.
What was your money mistake this month?