Paying Off Primary Mortgage and Home Insurance Question

26 Replies

So, I am planning to finish my primary house mortgage. Was wondering if I have to do any work or be prepared for anything before I satisfy the loan? Understand, have to take care of insurance, taxes and deed with the county. Since, I'll be paying taxes and insurance on my own.

Is there anything else? Also, should I change my home owners insurance limits, so that premium can go down? Currently, I am paying ~$800/year.

Any other tips or advice? Thanks very much.

I would prepare the house for getting appraisal done to either pull a refinance or a good HELOC(revolving preferably) to go purchase some more properties. I prefer the HELOC to use a small amount for closings costs and down payment and then just pay that back as fast as possible. to repeat or work on paying down the new mortgage if your wanting to play it safe

Thanks very much @Mark Webb . There was a recent appraisal done in 2015, can that be used or no? I'll have to read about HELOC(revolving one). Can you please elaborate on "I prefer the HELOC to use a small amount for closings costs and down payment and then just pay that back as fast as possible"

Also, if I would be doing HELOC or anything of that sort then I wouldn't have to touch home owners insurance and all, since that won't change much, right? Thanks again.

Paint the door red, so all the neighbors know. :)

@Chris Mason , I was actually planning to paint it red, purple, yellow and orange. Of course, I am kidding :)

Believe it or not, in my neighborhood one of the HOA approved color for front entrance door is red, so you are spot on :)

Originally posted by @Syed Shah :

@Chris Mason, I was actually planning to paint it red, purple, yellow and orange. Of course, I am kidding :)

Believe it or not, in my neighborhood one of the HOA approved color for front entrance door is red, so you are spot on :)

 Traditionally a red door means you paid the mortgage off and own it free and clear.

You don't need to do anything with the deed... it's already in your name. Within a month or so after paying off your note the lender will record a certificate of satisfaction alerting the world that your payment obligation has been satisfied and their lien is released.

Congratulations. Follow the lender's instructions on how and where to send the pay-off. Let your insurance company know there isn't a lien and they will bill you directly. If you choose to obtain a HELOC the lender will order their own appraisal.

@Syed Shah. I would recommend a Heloc. Banks would lend up to 90% of your homes value considered that it’s your primary. Helocs is a home equity line of credit. You only pay a payment on what you use.

Example: if you have a heloc of 100k and you only use 20k. Then your payment is calculated on the 20k. Once you pay the 20k off. Then you have no payment till you use the heloc again. I have a heloc on my house in 2nd lien position. I use it to buy & flip houses. Once I sell or cash refinance. I pay off my heloc & buy more houses. The benefit is that you have cash access to your equity 24/7. Helocs are cheaper because there’s no closing cost or appraisal fees with most banks. I went to my local credit union.

I would not recommend refinancing your home to pull cash out. Because now you would be back to square 1 by adding a new debt / mortgage and defeats the purpose of paying off the existing mortgage now. And you’ll be committed to a 15 or 30 year mortgage payment AGAIN!

This is my own opinion because this is what’s working for me. I like to leverage my money & that’s how I invest. My goal is to pay off my existing mortgage & get 100% heloc so I can cash out properties to flip or hold. Currently I’m using private & hard money to purchase investment properties and using my heloc for down payment & fix up costs.

Hope this helps. Happy Investing!!

Eddy T

@Eddy T.

There are banks/credit unions here locally that will get a HELOC up to 100% CLTV. So you can definitely leverage more :-)

Something to consider is credit score and DTI. A mortgage loan is the best type of loan you can put on your credit since it's an installment loan (vs a HELOC is a revolving loan). Also, your monthly payments are lower in a traditional mortgage (especially 30-yr) than a HELOC payment, if the loan balance is the same in both cases. I've seen the minimum monthly payments on a HELOC falling between 0.75% to 1.5% of the loan balance. It might have a 4% interest rate, but that's a 9-18% loan constant.

These don't matter too much if you're flipping, but once you start getting into rentals, you have to watch your credit and DTI a bit more.

By the way, which local hard money are you using?

@Chris Mason

Didn't know the significance of a red door.  Most of the flippers in my area are putting red doors on their flips... wonder if they know anything about it.

@Syed Shah

If you're going to do a HELOC, you won't need to wait until you pay off your loan. The HELOC can just pay it off directly, and you might save some closing costs by doing it all in one transaction. Congrats for paying it off, BTW. That's amazing!

@Nghi Le I use eastside funding. I see you’re in Seattle. Maybe we can connect. Let me know!

@Tom Gimer , thanks very much for your insight and input. 

@Bob B. will certainly, but should I change my coverage for home insurance, since now I don't have any requirements or anything from mortgage lender? So that premium can go down?

@Eddy T. I am definitely not going to refinance, even I am at the fence for going towards HELOC route, since I am planning to buy another property and HELOC can be really helpful in terms of a flip or for wholesale, but not sure if it's going to help much for a passive income stream rental property? Thinking to maybe save some more capital and then go towards a traditional mortgage route, but still running numbers and deciding :) I'll check with a few local CU's too.

@Nghi Le , thanks for your advice and input. I really liked your explanation for HELOC for rental vs a flip. Very helpful!

Just so you know changing your insurance coverage doesn't have much to do with paying off your mortgage. You can raise your deductible to lower your premium right now the only effect as you noted after payoff is paying the insurance company directly. 

@Syed Shah I have a $2500 deductible on my primary house and $200 on my rentals. 

@Syed Shah I have a $2500 deductible on my primary house and $200 on my rentals.

Typo

$2000 not $200

@Bob B. thanks for your advice. I am just curious, how much do you pay yearly with $2000 deductible? I am at ~$800/year with $2000 deductible.

Originally posted by @Steven D. :

Just so you know changing your insurance coverage doesn't have much to do with paying off your mortgage. You can raise your deductible to lower your premium right now the only effect as you noted after payoff is paying the insurance company directly. 

 Thanks very much for your input, what I meant was usually because of loaned amount from mortgage company, there's a requirement to have minimum dwelling coverage and all. Since, I won't have a loan, so as such if dwelling covered amount was previously $200K, now I can change it to $125K and it'll affect insurance premium, hopefully? Would that be worth it or no? Thanks 

@Syed Shah

I don't think you will be able to change your insurance premium too much.  I've played with several different scenarios myself, and it didn't make much difference on the amount (except if you add/remove earthquake insurance).  Maybe $200 savings max?  But that's a $17/month savings.

Maybe it's a good time to check out other insurance providers too.  You might want to try to find an insurance broker to get you the best rates among several insurance companies.

Thanks so much @Nghi Le , I really appreciate your help and feedback. Will try a few scenarios to see if I can save much, else will leave it alone. Better to be safe than sorry. 

@Syed Shah a new appraisal will be issued at the time of applying for a refi or helec. 

here is the comparison based on a $200,000 house

Refi: cash out refinance. lets assume you'll get 80% for the sake of this comparison. so you can take that $160,000 and buy another house that would be free and clear lets say for $140,000 plus closing costs and minor repairs lets call it $150,000 with a remaining $10,000 in reserves( lets assume you just pay retail for the house so we don't complicate things)

so your total property values are $340,000 minus your $160,000 loan so your property equity is $180,000 plus a $10,000 cash reserves but in order to access that equity again you either need another cash out refi or to pull a HELOC.

VS

HELOC; revolving credit line lets call this one 80% as well so $160,000 you take $28,000 of this for a 20% down payment on the $140,000 house and put another $10,000 up for minor repairs and closing costs your at $38,000 all in and then have a lender provide the other 80% leaving you with a loan for $112,000

so now you have properties that are valued at $340,000 minus your $38,000 Heloc minus $112,000 loan your left with $190,000 in equity and a remaining HELOC of $122,000 that can be used for acquiring more cash flowing property or flips.

so its a higher amount of leverage but I always recommend focusing on paying back that HELOC when acquiring rentals so you can free up that bit of cash flow from your expenses then go purchase another rental using the same amount until a bank stops you then go after owner financing with 80%LTV+

hope this helps!

@Mark Webb , I appreciate your feedback and detailed explanation, makes perfect sense. For now, I am definitely looking at HELOC as an option and not really considering refi.

Totally agree with Eddy and Mark. If you are paying off the mortgage, don't do refinance or cash out. HELOC is a great idea and it's awesome because you can use it as and when you need it. You can pay it off whenever you want.

@Syed Shah your heloc is your capital. Leverage your money. Apply the BRRRR strategy. Bigger Pockets has a BRRRR video on YouTube.

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