Fixing My Garage Door: D.I.Y.? Or P.A.P.T.D.I.F.Y.?

My wife and I moved into this house in November, 2007. When we got here, I wondered how long we would be able to go without needing some sort of service call. I'm not much of a carpenter, but I try to be a DIY-er (a.k.a "Do-It-Yourself") rather than a PAPTDIFY-er (a.k.a. "Pay-A-Professional-To-Do-It-For-You:) whenever possible. I broke my streak yesterday after nearly 11 months. It was a tongue-in-cheek moment as I wrote a check to Overhead Door Specialists (of Castle Hayne, NC), but I smiled because I was a very satisfied customer.

Imagine the sound of an entire classroom of recently-manicured elementary school students scratching their fingernails across a chalkboard. That's what I heard every time I closed the garage door. And then imagine an invisible Floyd Mayweather, kicking, shaking, punching, and otherwise beating the piss out of a piece of sliding, artistically textured sheet metal. That's what I saw every time I closed the garage door. Operating our automatic garage door became an activity that we came to dread, as it rattled the entire frame of the house and most certainly woke up our neighbors in the middle of the night.

From the interior door connecting the kitchen and the garage, we could reach the button that would open and close the troublesome exterior door. We got in the habit of standing at the interior threshold, pressing the button, slamming the door and running for our lives. Even the closed interior door was no match for the wrath of the metal-on-metal cacophony that hit our eardrums like an eardrum-seeking missile.

In the past, I had successfully addressed every home issue and improvement that I deemed significant and/or necessary. In the interest of saving money, I researched the activities online and performed the work myself. In the past year, I have swapped out a light switch, replaced the kitchen sink, installed numerous landscaping improvements, repaired a fence gate, shimmed a door, changed my own oil, hung floating shelves, and built a fire pit in the back yard that has received numerous compliments from our house guests. But repairing an expensive piece of machinery that boasts scores on independently-moving parts with which I have no experience wasn't something that I was willing to do alone.

Reluctantly, I hopped on Google and looked up the garage door repair place who I had seen at a neighbor's home a while ago. A friendly couple arrived at 5pm in their work truck that was a converted ambulance*. The came inside, greeted me and my dog, and got to work. I told them that I suspected rusty rollers or hinges (If I had done this myself, the first thing I would have done would be to take off all of the hinges and try and clean the rollers, which would have taken at least two hours). I was way off.

Keith, my repairman, showed me how the original door installer, in either the interest of time or habit of laziness, had done a poor job of hanging the track on which the door slides. You could see the professionalism and years' of experience in his face as he expressed his disappointment in the shoddy work of the builder. "They just don't care! They want to be done with it and move on to the next house. 'Does it open? Yeah? OK, we're done!'"

He readjusted the track -- which was a two-person job -- and then put lubricant on the hinges and rollers. He showed me the elusive point of contact that had been creating all of the noise -- a spot that I never would have found on my own. Turns out, it wasn't a roller at all. Because the tracks weren't hung straight, a steel hinge had been rubbing against the steel track, getting worse over time. Imagine a square (the door) in between two parallel lines (the track). If one of those lines is slightly nonparallel with the square, then [noisy] contact will occur. Who'd have thought?

My exterior door opens beautifully now. After they left, I sat in my garage, opening and closing it for at least 10 minutes, enjoying its new-found purr as if it were a selection of inspirational classical music. I reflected on the check that I had just written for $70, happy to have parted with it. If I had been stubborn and unwilling to pay for a service for which I was supremely unqualified to perform on my own, I could have been stuck with permanent damage to the frame of my home (thanks to all of the violent jostling) and/or a broken garage door opener.

DIY repairs can be an excellent way to save some money. But you should also know when to PAPTDIFY (pronounced "pap-defy"). DIY in this case would have put into jeopardy an expensive piece of machinery that I knew nothing about. My first task would have been a total dart throw and a complete waste of time. A poorly-completed repair could have worsened the problem and cost me more money in the long run.

Taking care of your home is important. Repairs will be needed periodically, most of which we can perform ourselves. We shouldn't call a professional just because we're lazy (I still have a hard time watching my young, physically fit neighbors pay someone $30 to mow their tiny .16-acre yards). But if you're tackling a job that is waaaay over your head, call a pro. They'll save you a heap of time and ibuprofen. But when they're fixing whatever they're there to repair, stay out of their way, but close by -- you might learn something!

*Side note: Their work truck was an old converted ambulance that they bought online from a seller out west. Turns out, it was the ambulance that transported the late Ted Williams to the cryogenic freezing lab after his death...at least the "part" of him that made it there, if you know what I'm saying. They call their work truck "The Ice Box."

Paying down that mound of student loans

A reader of my site sent me a private message describing an intimidating financial situation that she found herself in. After attending an expensive out-of-state college and starting grad school, she has found herself with $140,000 in student loans. Let me just say this: if your parents paid for your education, call them today and thank them.

I called her while driving back home from a business trip to talk it over. In this post I'll describe to you some of the specifics of her situation, some options that she was considering, the advice that I gave her, and the numbers that I crunched when I got back home, and my final conclusion.

Specifics:
Current sum of balances: $140,000
Current interest rate: varies; different loans have different rates ranging from 4.5% to 7.5%
Current salary: $60,000
Current credit: So-so, but her father has good credit and is willing to co-sign
Current living expenses: limited, as she is living with her grandmother

Options she was considering:
#1 - Buying a house and consolidating the student loan debt into the mortgage:
Her father suggested doing this, but she wasn't sure about her options. I can't say that this is not necessarily bad advice, but it really isn't an option. Here's why:

Depending on your situation, down payment, and credit score, mortgage lenders may be willing to give you some extra cash to help with certain expenses, like necessary repairs or closing costs. However, they're very careful about not giving you too much money, as they don't want the balance of the mortgage to exceed the value of the home because the home is used as collateral.

Mortgages tend to have lower interest rates than personal loans, credit cards, and student loan consolidations. That's because they present less risk to the lender because the loan is secured with an actual house. If you don't pay your loan back, the bank can seize and sell your home. The same goes for car loans. On the other hand, if you fail to repay your student loan or a personal loan, sure, the bank can destroy your credit, but they're S-O-L when it comes to getting their money back.

If my reader were to roll her student loans in with her mortgage, the balance on the mortgage would be $140,000 more than the cost of the home, less the down payment. So unless she was putting at least $140,000 down on the house, the bank would be "upside down" on her loan -- meaning they were owed a lot more than the collateral was worth. Banks don't like to be upside down, so her request would likely be denied.

On a side note, this type of lending and borrowing was a root cause of the recent economic downturn. People bought homes and assumed that, because of the housing bubble, the value of their homes would skyrocket and they would have incredible amounts of equity. Let's say I bought a house for $200,000 with no down payment. At first glance, I would have zero equity. But if after a couple of months the house was assessed at $300,000, my equity would be $100,000 and my bank would potentially loan me up to that amount in a home equity loan. This happened often and sounded great to everybody. But as home values eventually declined, all of that false equity diminished. All of the sudden, people that exercised these types of loans owed $300,000 on a home that was now only worth $175,000...but I digress.

#2 - Consolidating her private loans
My friend has a combination of federal and private student loans. Her federal loans are already consolidated at 4.5% -- a rate I wouldn't part with for the world. Her private loans (which I assume are the majority, given the high sum of her balances) have interest rates which vary from 6.5 to 7.5 percent.

This morning I looked into the cost of consolidating private loans. Turns out, it's more expensive than I had imagined. According to studentloanconsolidator.com, consolidating your private student loans will give you a variable interest rate from 7.9 to 11.93 percent and smack you with a one-time consolidation fee of 1-5%. I've got to say, that's pretty expensive! Of course, there are other options out there, but the consolidation of private student loans are very very expensive, especially considering my reader's current 6.5 to 7.5 percent interest rate.

The advice that I gave her on the phone:
When we spoke, I was in the car and didn't have time to research the total cost of paying back her loans or her consolidation options. I told her that consolidating her loans with a mortgage were simply not an option because she wouldn't have enough equity in the home. I told her to continue living with her grandmother as long as she could stand it and keep sending extra money to her lenders. I told her to start keeping track of her money -- how much she has, where it goes, etc, by using my favorite site on earth, mint.com. Finally, I told her to save a couple of months' pay in an emergency fund.

The numbers I crunched this morning:
Assuming a $140,000 principal balance, a 20-year payback period (common when it comes to loans), and an average rate of 7%, her regular monthly payments are probably somewhere around $1,085 per month. If I knew what her actual monthly payments were, I could be more certain about her average interest rate.

By paying that minimum payment each month, her student loans will be paid off in 20 years. However, if she sends and extra $500 per month toward the principal, her loans will be paid off in just over 10 years. If she can scrape together an extra $700 per month, the loan will be paid off in less than 9 years.

If some of her loans carried a higher interest rate, she could consider asking her father to take out a home equity loan for her. Because he's willing to co-sign on a loan, he's already shown that he's willing to put his credit and cash on the line to help out his daughter. Assuming that he owns his home and has considerable home equity, he could take out a home equity loan with a potentially low interest rate and pay off her student loans. The thing to consider is that home equity loans typically last for 30 years, so this would only be a valuable option for her if she were to 1) pay off the loan early and 2) obtain a lower interest rate than the highest of her student loan rates.

Final conclusion:
My friend is really in no position to purchase a home at this point. Her current student loans really resemble a mortgage. At her current income level, I would expect that she could afford a home worth approximately $140,000 to $180,000 dollars. But because her $140,000 in debt doesn't come with a house, she doesn't have the option to "live in her investment" or rent out a room. I would recommend that she refrain from buying a home until the balances on her student loans are cut down to at least $50,000.

If her student loans each carry different interest rates, she should start by paying down the one with the highest interest rate. Once that's paid off, she should start paying off the next one and the next one and so on. I recommend that she do this methodically and automatically by setting up regular payments with her bank. But she should make sure that the extra payments are going toward principal and not toward next month's payment.

An education is a valuable thing -- and an expensive one, too. Student loans are a part of life for many people, including myself, my wife, and many of our friends. By being smart about paying them down and using all of the resources available to you, you can bring your balance to a big fat zero in no time. Then, you'll be able to start saving that money for your own child's education!

To my reader that called asking for help: feel free to send me an email with the specifics of your loans. I've built some calculators that will help optimize their payoff, ensuring that in the end you're paying as little as possible.

What to do if you're upside down on your mortgage

Also see my related post: What if You're Upside Down on Your Mortgage and Need to Move?

A lot of blame for the housing crisis is placed on "sub-prime" borrowers and the banks that loaned to them. It is true that at one point earlier in the decade it was probably too easy for someone with bad credit to obtain a loan. But declining house values and the subsequent emergence of negative equity also affected many intelligent, well-educated homeowners with decent credit. Many of them Gen Xers and Gen Yers that were buying their home because they were entering the home-owning phases of their lives -- not because low-payment mortgages were falling from the sky like raindrops.
Many of these homeowners that are in trouble had simply overestimated their luck in hopes of making a good investment. I'm sure that many of them, before buying a home, analyzed the cost of renting vs the cost and appreciation associated with owning. Given the numbers at the time, buying made sense. Additionally, many of the homeowners in trouble believed their lenders were looking out for their best interests; a belief that was unfortunately discredited for thousands. And TV shows like HGTV's "My House is Worth WHAT?" gave intelligent homeowners false hope about the financial returns they could receive by spending thousands on home upgrades (and financing them with home equity lines of credit).
So if you find yourself in an upside-down situation, what do you do? Should you pay down your balance until your equity is positive? Not necesarily. You should treat your loan -- upside-down or right-side-up -- just like any other loan that you're considering to pay off early. The higher the interest rate on your loan and the lower the interest rate at which you can save, the more sense it makes to pay extra. But if you have a reasonable rate, let's say below 6.5%, I'd rather see you hold on to your money. Throwing more money at your morgage isn't going to increase the value of your home. Only time and inflation will.

If you're upside down on your mortgage, don't expect to be able to move anytime soon. Save as much money as you can in an interest-bearing savings account that is easy to access until the time comes to sell your house. If you're able to wait long enough, your upside-down issue will eventually correct itself. If you need to sell before then, your savings will enable you to send a heap of cash to your lender a week before the sale, bringing your equity back into the green in one fell swoop.
In the future, never forget the old addage "if it seems too good to be true, it probably is." I'm not saying that good investment opportunities don't exist. They certainly do. But truly exceptional opportunities rarely exist in the stubborn, slow, and steady real estate market. If you ever see your equity in your home growing faster and faster faster to a level that you can't believe, be cautious. It's like watching a racecar driving 300 miles per hour (they usually don't go much faster than 200). Sooner or later, it's going to crash.