I like to take some time at the end of each year (or in this case, well past the beginning) to look back on the financial decisions I’ve made and think about the year ahead.
Not much happened in the first eleven months of 2012 besides dutifully making our first year of mortgage payments. One down and 29 to go. It feels like an important milestone, though I can hardly fathom the next 29 years. Given how dramatically the housing market in San Francisco recovered last year, we started thinking seriously about refinancing before the year was up. If the value of our condo had appreciated to the point where we had 20% equity, then we could cease flushing nearly $400 down the drain each month paying for private mortgage insurance (PMI).
So we got our condo reappraised in December, which brought us close enough to that 80% loan-to-value (LTV) mark that we were able to pay down the principal to get the rest of the way there. We now have a brand new mortgage, this time sans-PMI (I never would have imagined that we’d be able to ditch it after only one year), with an interest rate that’s a half percentage point lower than we had previously. Altogether this is saving us nearly $700/month! Whereas before our monthly mortgage payment (including PMI) was comparable to the SF rental market, now it feels like a steal.
We took this opportunity to increase our condo insurance, which turned out to be a requirement of the refinance anyway. In the midst of that process our insurance agent asked if we’d considered life insurance—I think she described it as “a good way to protect your mortgage”. In the past I’ve generally rolled my eyes about life insurance, but now it started to make sense, especially projecting a future reality with children. Suddenly I’m estimating the cost of college educations 18 years hence for children that don’t even exist. It was a weird exercise, but suffice it to say, we both took out 20 year term policies that seemed to strike the right balance between frugality and security.
My financial priorities this year are unchanged from the last: #1 retirement, #2 emergency fund, #3 mortgage prepayment. I feel like I squeezed a whole year’s worth of changes into the months of December and January, so I’m content to give things a rest. There is one other thing I’d like to accomplish this year, and that’s writing a will. I was reminded of this after re-reading the article that started me on this path 6 years ago: ‘Dilbert’ deserves the economics Nobel. It was first on his list.