25-Year Installment Loan Hack -- and Our New $2.80/Month Mortgage Payment

[cv91915]

When we set out to repay our mortgage early, we faced the very real possibility of never having another open installment trade line on our reports.

 

So I decided to turn our soon-to-be-retired mortgage into an ultra-low-balance, open installment trade line to carry us through June of 2046 (or until we sell the house, whichever comes first).

 

In the process we ended up with a $2.80 mortgage payment.

 

To Replicate:

 

Step 1: Get a mortgage (or start with one you already have). 

Step 2: Pay almost all of it off.

Step 3: Have your balance recast (re-amortized over the remaining loan term).

 

Tips and Thoughts:

 

Check with your servicer for their terms and requirements; these comments are based on how ours works.

 

• Recasts can only be initiated at the same time as an additional principal payment of $5,000+ is made.
• Recast requires a one-page form with original signatures, and generally takes 2 payment cycles to go into effect... but the timing isn't guaranteed.
• There is no cost.
• The P+I payment that is due each month doesn't change until the entire process is complete.  
• My original goal was to get the payment at or below $0.99/month, but pushing the principal balance too low would have created the risk of having the balance fully repaid in the event of a processing delay.
• In hindsight I should stopped having our taxes paid through escrow when the recast was initiated.  Our P+I payment plus 1/12 of the annual taxes pushes our "payment" to an amount that is greater than the loan balance.  This triggers a phone call each month from an agent who's very excited to walk me through the process of making my final mortgage payment... which is the opposite of what we want.  

 

Exhibit A - Recast Agreement Excerpt:

 

 

Exhibit B - January 2020 Mortgage Statement Excerpt:

 

 

 

[cashnocredit]

I love it! Shows it pays to read the fine print and get creative.

 

This is going to cost the mortgager more than the interest payments to service and escrow property tax. If I were them I'd forgive the rest of the loan and close it. But it's likely you are sui generis and the bureaucracy will likely do nothing. Now if there were thousands doing this clever hack, that could change.

[cv91915]

4 hours ago, cashnocredit said:

This is going to cost the mortgager more than the interest payments to service and escrow property tax. If I were them I'd forgive the rest of the loan and close it. But it's likely you are sui generis and the bureaucracy will likely do nothing.

This was (and is) a concern.  

 

With some luck the agent who called me last week will be successful in getting our file suppressed from the report that triggers the monthly phone call.

 

I definitely want to stay under the radar on this.

 

 

Edited January 21, 2020 by cv91915

[Rogue]

Just do the Alliant loan hack, so much simpler and cheaper, plus you will have your home title free and clear and not have to worry about any potential action taken by the mortgager the works contrary to your plan.  I paid Alliant $1.04 in total interest for 2019 and probably could have cut that in half if I micromanaged the stupid thing, simply NOT worth the time.....

[cv91915]

5 hours ago, Rogue said:

Just do the Alliant loan hack, so much simpler and cheaper, plus you will have your home title free and clear and not have to worry about any potential action taken by the mortgager the works contrary to your plan.  I paid Alliant $1.04 in total interest for 2019 and probably could have cut that in half if I micromanaged the stupid thing, simply NOT worth the time.....

How does the 25-year Alliant hack work?

[hdporter]

6 hours ago, Rogue said:

Just do the Alliant loan hack, so much simpler and cheaper, plus you will have your home title free and clear and not have to worry about any potential action taken by the mortgager the works contrary to your plan.  I paid Alliant $1.04 in total interest for 2019 and probably could have cut that in half if I micromanaged the stupid thing, simply NOT worth the time.....

 

I have to favor Rogue here.  cv's mortgage, if PIF now, should report until 2030.  A modest installment loan taken then will ensure that an installment loan is reported by the CRA's for the next 20 years.

[hegemony]

I'd hate to be foreclosed on with a $33.33 mortgage

[mizliz1011]

I prepaid my PIA car loan where I was earning interest (and paying taxes) on the balance I kept at PenFed to pay it automatically. I had seven months left at 2.99% but was effectively paying more because of tax effect.  It lowered my TU ten points by paying off $2,281.  EQ and EXP ignored it altogether.  Interesting.  I am now at 797 TU (sob).  I will get over it.  

[centex]

27 minutes ago, mizliz1011 said:

I prepaid my PIA car loan where I was earning interest (and paying taxes) on the balance I kept at PenFed to pay it automatically. I had seven months left at 2.99% but was effectively paying more because of tax effect.  It lowered my TU ten points by paying off $2,281.  EQ and EXP ignored it altogether.  Interesting.  I am now at 797 TU (sob).  I will get over it.  

Minor semantics argument, but with the exception of being the sucker who buys a score from a bureau (which is not even always a FICO), the four bureaus don't produce scores.  They sell the data that is then used by someone else to produce a score using whichever model of Fair Isaac they have massaged for their own purposes...

[mizliz1011]

I was wondering if the lack of an installment loan would affect my score.  I pondered it before doing it.  I am always interested in how paydowns affect the various FICOs.  I have a conceit that EXP now likes me after hating me for so many years.  

 

[hegemony]

I have not had an open installment loan for over years and my scores are over 800. YMMV

[cv91915]

10 hours ago, hdporter said:

 

I have to favor Rogue here.  cv's mortgage, if PIF now, should report until 2030.  A modest installment loan taken then will ensure that an installment loan is reported by the CRA's for the next 20 years.

The score impact of a closed installment loan is almost (if not actually) zero.  

 

This approach keeps the same TL open for 25 more years.  

 

With my AAoA currently around 8, in a few years this TL will start dragging that metric up, and will continue to be a powerful ballast until it drops at 40 years of age (the original 30-year mortgage term plus 10 years after it's paid and closed).

 

[cv91915]

6 hours ago, hegemony said:

I have not had an open installment loan for over years and my scores are over 800. YMMV

The over years are often the most difficult.

[hegemony]

33 minutes ago, cv91915 said:

The over years are often the most difficult.

last open installment (mortgage) PIF in 2016

 

Edited January 22, 2020 by hegemony

[cv91915]

6 hours ago, hegemony said:

I have not had an open installment loan for over years and my scores are over 800. YMMV

 

37 minutes ago, cv91915 said:

The over years are often the most difficult.

 

30 minutes ago, hegemony said:

last open installment (mortgage) PIF in 2016

 

That was a joke.   

[StarkRaven$]

Way cool!!! Couldn't happen to a nicer person. You rock!

[cashnocredit]

Quite aside from score impact, a paid down mortgage is one of the only things on a credit report that demonstrate assets. You might have 500k in a savings account but that won't show up on your credit report. OTOH, if you have a small balance on a 500K mortgage it tells creditors you have significant assets and haven't used your home as an ATM.

[hdporter]

NM

Edited January 22, 2020 by hdporter

[TheVig]

CV. You should post this over at MyFako. Just to see how fast it get deleted.

[Occam]

On 1/21/2020 at 6:51 PM, cv91915 said:

The score impact of a closed installment loan is almost (if not actually) zero.  

 

This approach keeps the same TL open for 25 more years.  

 

With my AAoA currently around 8, in a few years this TL will start dragging that metric up, and will continue to be a powerful ballast until it drops at 40 years of age (the original 30-year mortgage term plus 10 years after it's paid and closed).

 

Another benefit is having a mortgage lowers your bust out score (because it makes you look less like a synthetic person).

 

I'm just hoping Wells Fargo opens a couple of fake mortgages in my name before my 5 year Alliant loan run out...

[cv91915]

On 1/20/2020 at 1:50 PM, cv91915 said:

In hindsight I should stopped having our taxes paid through escrow when the recast was initiated.  Our P+I payment plus 1/12 of the annual taxes pushes our "payment" to an amount that is greater than the loan balance.  This triggers a phone call each month from an agent who's very excited to walk me through the process of making my final mortgage payment... which is the opposite of what we want.  

Earlier this month I had a lighthearted conversation with a manager in the servicing department about what a maniac I am, but she assured me that our file has been manually excluded from an exception report, which should stop future letters and exuberant phone calls offering to walk us through the process of making the final payment.

 

Apparently their servicing system will not auto-process an ACH for an amount that differs from the contractual amount due (P+I+escrow).

 

I asked, and she confirmed that if we had just ignored the letters and phone calls, the regular payment amount (P+I+escrow) would be ACHd from our checking account every month for the remaining term of the loan, and the amounts would be correctly split between P+I and escrow.

 

So we're still in control, but the saga continues...

[cv91915]

On 2/28/2020 at 6:17 AM, cv91915 said:

Earlier this month I had a lighthearted conversation with a manager in the servicing department about what a maniac I am, but she assured me that our file has been manually excluded from an exception report, which should stop future letters and exuberant phone calls offering to walk us through the process of making the final payment.

 

Apparently their servicing system will not auto-process an ACH for an amount that differs from the contractual amount due (P+I+escrow).

 

I asked, and she confirmed that if we had just ignored the letters and phone calls, the regular payment amount (P+I+escrow) would be ACHd from our checking account every month for the remaining term of the loan, and the amounts would be correctly split between P+I and escrow.

 

So we're still in control, but the saga continues...

 

This TL looks incorrect on the Experian app, so I got my paper reports before taking any action.  

 

On the Experian app version of my "credit report," the original loan balance is missing.  

 

I was concerned that my 24.7-year installment hack might be useless on this bureau, because of the possibility that FICO wouldn't see this installment TL as significantly repaid (one of the main points of the hack).

 

From the Experian app:

 

 

But the paper report, which is a much more complete representation of what the bureau has on file, shows the original loan amount as I had hoped (partially redacted for privacy) :

 

 

[This is only a small portion of the trade line data on the paper Experian report.  Every single month shows the balance, the scheduled payment amount, the actual amount paid and more, which is dramatically more data than you can see on Experian's app.  But that's a topic for another thread.]

 

 

Edited April 10, 2020 by cv91915

[Burgerwars]

I didn't go through all these hoops, but before my mortgage balance hit zero a couple years ago, Wells Fargo zero balanced the account on their own and declared the mortgage paid in full. I mention this because there is nothing to stop your mortgage company from doing the same. If they review your account, decide the account is losing them money keeping it open, and then on their own declare the account paid in full.

I do have another installment loan (a car lease). It helps my score a little, but not much.

 

[cv91915]

12 hours ago, Burgerwars said:

I didn't go through all these hoops, but before my mortgage balance hit zero a couple years ago, Wells Fargo zero balanced the account on their own and declared the mortgage paid in full. I mention this because there is nothing to stop your mortgage company from doing the same. If they review your account, decide the account is losing them money keeping it open, and then on their own declare the account paid in full.

I do have another installment loan (a car lease). It helps my score a little, but not much.

 

Based on what I've been told, my account requires some human attention every month since the $2.80 P+I payment plus the amount required to fund the escrow account exceeds the loan balance.  

 

This triggers an exception process that some human must now ignore every month.

 

Since my LTV is LOL I am able to cancel the escrow account, and today I'm dropping off a letter at a local branch requesting this (this can't be done online or by mail, and they have no form for this purpose... no idea why).

 

So soon I should fall off at least one monthly exception report, because at that point they'll be withdrawing only the $2.80 P+I amount against a $5xx balance that's amortizing normally.

 

This should reduce the likelihood of them wanting to call it quits before I'm ready.

 

 

 

 

(Also, fundamentally, this really wasn't about gaming my personal FICO scores, it was about pushing the limits of the installment loan hack for my own amusement.  ). 

[cv91915]

On 4/13/2020 at 6:39 AM, cv91915 said:

Since my LTV is LOL I am able to cancel the escrow account, and today I'm dropping off a letter at a local branch requesting this (this can't be done online or by mail, and they have no form for this purpose... no idea why).

 

So soon I should fall off at least one monthly exception report, because at that point they'll be withdrawing only the $2.80 P+I amount against a $5xx balance that's amortizing normally.

 

This should reduce the likelihood of them wanting to call it quits before I'm ready.

This process was annoying.  I was originally told that I had to drop off a physical letter at a branch, which I did.

 

The branches are currently open by appointment only, so I put the letter into the night depository (but not before calling from outside the building and confirming with the person who answered that they were checking twice a day.

 

I dropped the letter in the depository, and then.... nothing happened.

 

I called the servicing department last week, and my letter never found its way to them, so I had to submit the letter again.

 

 

 

 

Edited May 13, 2020 by cv91915