Author Topic: Cash out refi?  (Read 1554 times)

NotBadForADad

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Cash out refi?
« on: August 16, 2022, 04:05:45 AM »
So, I probably know the answer to this and I think it's going to be no. I think it would be better to get rid of the loans by paying them off as I can instead of tacking them onto a mortgage.

My only reason I thought this would be fine is to give us some needed cash flow as my wife looks for a job. I'm comfortable making our monthly payments as it is, and have been, but I'm still curious to what the general consensus is here.

Should I do a Cash out refinance?

Current loan: 250,000 at 4.3% (225,000 I'm paying, $25,000 in a Jr. Loan from forbearance) interest rate is 3.5% with .8% on PMI.

Monthly payments: $1932


New Loan Amount: $326,400 

Interest Rate: 4.99%

New Payment: $2350 includes tax + insurance + all debt paid off (~$32,000 consumer debt)
All debt is: $6600 in student loan @ 6%; $140/mth
Car loan $7700 @ 4.49@; $255/mth
Personal loan: $17,000 @ 4.99%; $340/mth

Cashout - $50,000 on top of paying off all the debt


Should I do this?

big_owl

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Re: Cash out refi?
« Reply #1 on: August 16, 2022, 07:45:30 AM »
Nothing like rolling all that unsecured debt into secured debt lol, all the while increasing your mortgage interest rate.  This sounds terrible to me.  Just pay off your debts. 

ETA your new mortgage interest rate would be the same or higher than 2oo3 of your debts.  Insanity. 
« Last Edit: August 16, 2022, 07:48:41 AM by big_owl »

NotBadForADad

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Re: Cash out refi?
« Reply #2 on: August 16, 2022, 07:47:32 AM »
Nothing like rolling all that unsecured debt into secured debt lol, all the while increasing your mortgage interest rate.  This sounds terrible to me.  Just pay off your debts.

Absolutely !

reeshau

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Re: Cash out refi?
« Reply #3 on: August 16, 2022, 10:16:06 AM »
Don't forget to add: stretching out your debt repayments for 30 years!

And why, exactly, would you need another $50k?  You are proposing to add more debt principal than what you have now.  i.e. YOU ARE PROPOSING GOING INTO MORE DEBT!

I think you have been led astray by thinking of the monthly payments, only.  That's a great trick used by lenders and advertisers to get suckers customers in the door.

Terrible idea, x3.  Use whatever extra money you think you could pay on the principal to snowball the other debts, and be done earlier.

NotBadForADad

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Re: Cash out refi?
« Reply #4 on: August 16, 2022, 10:33:08 AM »
Don't forget to add: stretching out your debt repayments for 30 years!

And why, exactly, would you need another $50k?  You are proposing to add more debt principal than what you have now.  i.e. YOU ARE PROPOSING GOING INTO MORE DEBT!

I think you have been led astray by thinking of the monthly payments, only.  That's a great trick used by lenders and advertisers to get suckers customers in the door.

Terrible idea, x3.  Use whatever extra money you think you could pay on the principal to snowball the other debts, and be done earlier.

thank you

Dicey

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Re: Cash out refi?
« Reply #5 on: August 16, 2022, 11:11:05 AM »
Climbing up the "No" pile.

Better idea: start a Case Study to get a handle on this problem, because it sure looks like one from here.

Uturn

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Re: Cash out refi?
« Reply #6 on: August 16, 2022, 02:16:50 PM »
I've never been able to make the math work on financing away debt.

Malum Prohibitum

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Re: Cash out refi?
« Reply #7 on: August 17, 2022, 06:03:19 AM »
Current loan: 250,000 at 4.3% (225,000 I'm paying, $25,000 in a Jr. Loan from forbearance) interest rate is 3.5% with .8% on PMI.

. . .

New Loan Amount: $326,400

If somebody is willing to loan you $326,400, then why are you paying 0.8% PMI? 


I am assuming that $326,400 is not 100% of current home value, but even if it is, you are currently at 76% loan to value ratio.  Request that your lender stop the PMI based on the loan amount now being below 80% of the home value.  You might need to pay the bank for an appraisal (but you were going to do that to get a refinance anyway, right?).  Presto, 3.5% mortgage rate, saving you more each month than the student loan payment.   Just be sure to apply that savings to one of the debts as an extra principal reduction each month.

What is a $25,000 Jr. loan from a forbearance?


In short, though, no, I would not trade your 3.5% loan for a 5% loan over the next 30 years of your life.   What about this math looked "good" to you?  You claimed this was for "cash flow" while your wife is not working, but you say you are "comfortable" making the monthly payments, so cash flow is not needed.

3.5% is far better than you can do today on a 30 year mortgage with excellent credit (it's better than you could do on a 15 year mortgage, too).  Don't refinance unless you can get a lower rate.


Malum Prohibitum

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Re: Cash out refi?
« Reply #8 on: August 17, 2022, 06:14:23 AM »
Cash flow - if you get rid of the PMI, your proposed plan would save you in cash flow about a hundred and seventy bucks a month in outgoing payments.  I don't know what your monthly income is, as you did not share that information, but this seems like a bad trade off for increasing your mortgage from 3.5% to 5%.

I would urge you to stop looking for quick fixes. 

Stick with your lower mortgage rate.

Get rid of PMI.

Look for $150 to cut from your budget this month, and maybe another $50 next month.

There are more jobs out there right now than persons to fill them.  It's a seller's market (seller of labor, in this case).  Encourage your wife to look diligently and more urgently for work.  At the dollar levels you are discussing, ANY income, anything, makes a huge difference in quickly wiping out those debts you listed.  Holding out for the perfect fit or higher income may not be the best option right now.  Each month of $0 income is costing you.   You have only $30k of debt outside of your mortgage.   If we assume you can make $0 extra payment to principal reduction right now, then the solution is clear.   Even a $30k job would get rid of the entire debt load (except your mortgage) in a little over one year.

It's just math.

The solution is not more borrowing at higher interest rates. 

If you do this, you will kick yourself down the road.

If your wife gets to work, you pay off the debt in a year, and down the road you have a low interest rate mortgage with a balance much, much lower than $250k, you will not kick yourself, and you may even come back to this thread and thank us.

Sorry if any of this sounded harsh, or blunt, but I was not sure how to point out the math without being sort of blunt. 

NotBadForADad

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Re: Cash out refi?
« Reply #9 on: August 17, 2022, 07:06:49 AM »
Current loan: 250,000 at 4.3% (225,000 I'm paying, $25,000 in a Jr. Loan from forbearance) interest rate is 3.5% with .8% on PMI.

. . .

New Loan Amount: $326,400

If somebody is willing to loan you $326,400, then why are you paying 0.8% PMI? 


I am assuming that $326,400 is not 100% of current home value, but even if it is, you are currently at 76% loan to value ratio.  Request that your lender stop the PMI based on the loan amount now being below 80% of the home value.  You might need to pay the bank for an appraisal (but you were going to do that to get a refinance anyway, right?).  Presto, 3.5% mortgage rate, saving you more each month than the student loan payment.   Just be sure to apply that savings to one of the debts as an extra principal reduction each month.

What is a $25,000 Jr. loan from a forbearance?


In short, though, no, I would not trade your 3.5% loan for a 5% loan over the next 30 years of your life.   What about this math looked "good" to you?  You claimed this was for "cash flow" while your wife is not working, but you say you are "comfortable" making the monthly payments, so cash flow is not needed.

3.5% is far better than you can do today on a 30 year mortgage with excellent credit (it's better than you could do on a 15 year mortgage, too).  Don't refinance unless you can get a lower rate.

I'll try to answer your questions here.

If somebody is willing to loan you $326,400, then why are you paying 0.8% PMI?
- Essentially, I bought the house back in 2019 with an FHA loan at 5%. I recently went through a loan modification and they reduced it to 3.5%. The loan officer I was just speaking with this week mentioned I am paying .8% on PMI. Why am I paying PMI? I am not sure. I called my mortgage company to ask if I can get this taken off my loan as the value of my house is around $410,000 and I bought it for $252,000. I put about $100,000 in renovations over the last year and has yet to be appraised. When I spoke to my mortgage company, they said I would need to refi the loan or pay for something like 12 years.

What is a $25,000 Jr. loan from a forbearance?
- When covid happened, we opted for the forbearance because my wife lost her job and we became a single income family. At the time, I also changed jobs which reduced my salary by 7k a year. So, I did not make payments for a while and have recently starting making payments since the beginning of this year. I did a loan modification with my mortgage company where I now have my current mortgage I pay, and then the junior loan which is to be paid when I refi or sell the property.

I wasn't considering doing the refi option, what happened was I was looking into doing a HELOC or something to tap the equity in my house so I can put in a new fence and do some excavation work in my back yard. Unfortunately, my current mortgage lender does not offer HELOC. They told me I need to sell or refi with a different bank, so I went to one of those online sites and got bombarded with emails and phone calls from a half dozen different lenders. They made it sound like a decent deal where I could consolidate the junior loan with my mortgage, give me a ton of cash to do the work I wanted to do, yes the rate was higher but was they said I could do another refi in a few months when/if rates come down.

It didn't sound to enticing so I came here to ask the question.

I can pay off the car loan, student loan, and the personal loan probably within 2 years which would save me about $800 a month. This is a way better option than increasing my mortgage to save $400 a month (not to mention extended these loans out 30 years).


NotBadForADad

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Re: Cash out refi?
« Reply #10 on: August 17, 2022, 07:13:21 AM »
Cash flow - if you get rid of the PMI, your proposed plan would save you in cash flow about a hundred and seventy bucks a month in outgoing payments.  I don't know what your monthly income is, as you did not share that information, but this seems like a bad trade off for increasing your mortgage from 3.5% to 5%.

I would urge you to stop looking for quick fixes. 

Stick with your lower mortgage rate.

Get rid of PMI.

Look for $150 to cut from your budget this month, and maybe another $50 next month.

There are more jobs out there right now than persons to fill them.  It's a seller's market (seller of labor, in this case).  Encourage your wife to look diligently and more urgently for work.  At the dollar levels you are discussing, ANY income, anything, makes a huge difference in quickly wiping out those debts you listed.  Holding out for the perfect fit or higher income may not be the best option right now.  Each month of $0 income is costing you.   You have only $30k of debt outside of your mortgage.   If we assume you can make $0 extra payment to principal reduction right now, then the solution is clear.   Even a $30k job would get rid of the entire debt load (except your mortgage) in a little over one year.

It's just math.

The solution is not more borrowing at higher interest rates. 

If you do this, you will kick yourself down the road.

If your wife gets to work, you pay off the debt in a year, and down the road you have a low interest rate mortgage with a balance much, much lower than $250k, you will not kick yourself, and you may even come back to this thread and thank us.

Sorry if any of this sounded harsh, or blunt, but I was not sure how to point out the math without being sort of blunt.

We have been diligent about cutting back expenses, selling things around the house. I have done some flooring gigs on the side and she has sold some of her stained glass as well.

I just started a new job this year making $85,400. This is the highest paying job I've ever had. My wife stays home with our son and has been looking for a pt night job. I've urged her to do better and it has been aggravating because she says "I don't want to work weekends" or "I don't want to work holidays" or "I don't want to go back to my job at best buy because I was there for 11 years and I finally got out". It's childish, I express to her how it sucks for me to be the bank for all of our housing expenses. I work every day of my life, and then I come home and work on the house.

I understand the math in the situation, look at my prior post, I am not favoring this deal at all.

charis

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Re: Cash out refi?
« Reply #11 on: August 17, 2022, 08:01:00 AM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.
« Last Edit: August 17, 2022, 08:03:56 AM by charis »

joe189man

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Re: Cash out refi?
« Reply #12 on: August 17, 2022, 10:20:50 AM »
I understand the math in the situation, look at my prior post, I am not favoring this deal at all.

I don't think this works in your favor at current rates. When rates were at 3% maybe there is some math-a-magic that would have made sense.
When do the kids go to school? that may offer some opportunities to for DW to work part time

NotBadForADad

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Re: Cash out refi?
« Reply #13 on: August 17, 2022, 10:27:57 AM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

slappy

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Re: Cash out refi?
« Reply #14 on: August 17, 2022, 01:42:37 PM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

The local schools are in desperate need of bus drivers and she can take the child with her.

sonofsven

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Re: Cash out refi?
« Reply #15 on: August 17, 2022, 02:30:25 PM »
I can see why you're tempted: monthly debt payment would go from current $2,667 to $2,350,  plus $50k. Or $45k, as that's what I got when I totaled your debt+mortgage payoff.
Is this an actual loan offer, and if so does it really cost $5k? Because that would be a no right there. Look closely at the loan costs. They make you pay dearly, if they can.
I think it would be better to get your debt squared away, then when rates drop, pounce. Get yourself in a better position.
Is that 6% student loan high, or normal? I know the 4.49% car loan is high, which suggests you aren't getting the best rates currently.


NotBadForADad

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Re: Cash out refi?
« Reply #16 on: August 17, 2022, 03:10:32 PM »
I can see why you're tempted: monthly debt payment would go from current $2,667 to $2,350,  plus $50k. Or $45k, as that's what I got when I totaled your debt+mortgage payoff.
Is this an actual loan offer, and if so does it really cost $5k? Because that would be a no right there. Look closely at the loan costs. They make you pay dearly, if they can.
I think it would be better to get your debt squared away, then when rates drop, pounce. Get yourself in a better position.
Is that 6% student loan high, or normal? I know the 4.49% car loan is high, which suggests you aren't getting the best rates currently.

Yes, at first glance it seemed like an OK deal, 300ish less a month and a pile of cash.

Not sure about the student loan but I can check with my credit union on the car loan. I don't want to refi and extend the loan out if it was only the one, but if I refi and make the same payments or something. Not sure.

charis

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Re: Cash out refi?
« Reply #17 on: August 18, 2022, 09:03:55 AM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

It seems that you meant to respond to another poster, since this is not related to what I commented.

charis

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Re: Cash out refi?
« Reply #18 on: August 18, 2022, 09:06:02 AM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

The local schools are in desperate need of bus drivers and she can take the child with her.

You definitely cannot take your three year old on a school bus route. 

slappy

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Re: Cash out refi?
« Reply #19 on: August 18, 2022, 10:12:25 AM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

The local schools are in desperate need of bus drivers and she can take the child with her.

You definitely cannot take your three year old on a school bus route.

Absolutely can! That's one of the main perks of the job! Any child over the age of 1, I believe, is allowed to be with the parent on the route.

charis

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Re: Cash out refi?
« Reply #20 on: August 18, 2022, 12:24:20 PM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

The local schools are in desperate need of bus drivers and she can take the child with her.

You definitely cannot take your three year old on a school bus route.

Absolutely can! That's one of the main perks of the job! Any child over the age of 1, I believe, is allowed to be with the parent on the route.

Maybe where you live, but it's certainly not allowed universally.

lifeisshort123

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Re: Cash out refi?
« Reply #21 on: August 18, 2022, 02:26:12 PM »
In general I think cash-out refis are bad ideas.  Others are free to disagree.  This one continues to follow my belief that they are a bad idea.

clarkfan1979

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Re: Cash out refi?
« Reply #22 on: August 19, 2022, 07:37:21 PM »
In general I think cash-out refis are bad ideas.  Others are free to disagree.  This one continues to follow my belief that they are a bad idea.

Generally speaking, I agree with this statement. When you apply it to a situation in which you get a higher interest rate, just to pay off other debt, I agree with this statement even more. 

With this said, I have done two cash-out re-fi's in my life. However, both times I got a lower interest rate and I used the money to buy another rental house, which ultimately generated more cash flow and increased my net worth.

Dicey

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Re: Cash out refi?
« Reply #23 on: August 19, 2022, 07:45:55 PM »
In general I think cash-out refis are bad ideas.  Others are free to disagree.  This one continues to follow my belief that they are a bad idea.
This is also known as using your home as an ATM, which is generally frowned upon in Mustachian circles.

You dug the hole, don't expect your home to bail you out of it. Why not? Because until you can demonstrate significantly improved money management skills, you're just a disaster or three away from losing everything. Do the work. Figure it out. Kill the debts one by one, blah x 3. It's boring, but it's the right way to get the job done.

Zamboni

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Re: Cash out refi?
« Reply #24 on: August 20, 2022, 08:34:22 AM »
I'll add to the unanimous response (including thoughts from OP!) that using your home as a piggy bank is not the best idea.

On the wife working front: I recently went through similar bout of immaturity with my adult son. He was home from college for the summer wanted to get work as a bouncer/security at local bars. This was work that he easily got at two places on a PT basis. Knowing that he had two gigs, each place then told him that he needed to tell them what days he could work so they could plan their schedules.

He told me he didn't want to work on Fri/Sat nights so that he'd always be free to go out and party with his friends. I told him that I thought that viewpoint was silly, because Fri/Sat night at the bars is when it is busy, and thus when they need him to work and can give him the most/best hours. So he abandoned that idea and grew up into a person who actually wants to earn money. And of course he mostly got scheduled Tues-Sat nights. Now that college is starting up again, I'm sure he is happy he earned that extra money rather than spending a few extra aimless nights with his buddies from high school.

So, in my opinion your wife just doesn't want to work. With you working daytime hours (I'm assuming), then she does need to tell work she is available on evening and weekends. I understand maybe wanting one weekend day off for "family time." So pick Saturday or Sunday as is her preference for family time, but she needs to work that other weekend day. With one child at home she should not have a problem completing the domestic tasks during the time you are at work. Teaching three-yearolds to help with the household tasks is part of the fun!

yachi

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Re: Cash out refi?
« Reply #25 on: August 20, 2022, 04:08:08 PM »
Please post a case study.  You are in dangerous territory.  You already have a lot of debt for your single income household, and you were looking to add another loan to work on your yard? No no no.  Concentrate on paying off your debt in two years, as you proposed, and do only absolutely necessary home repairs when they arise.  We bought our house with an FHA loan and it's true that you can't drop the PMI just because your home value increases enough where you'd normally be able to avoid PMI.  It stays until you refinance into a conventional loan or pay for a certain number of years.

Our son is three now. When school happens, my wife will work probably full time or 'mom hours'. Right now, we can't afford daycare, nor does she want him to go to daycare. We don't have much family assistance for her to work during the day either. Her mom works full time, her sister works full time as a nurse and is pursuing her PHD.

The local schools are in desperate need of bus drivers and she can take the child with her.

You definitely cannot take your three year old on a school bus route.

Absolutely can! That's one of the main perks of the job! Any child over the age of 1, I believe, is allowed to be with the parent on the route.

Maybe where you live, but it's certainly not allowed universally.
Chiming in to say in our Pennsylvania school district you can absolutely do this.  One of my kids rides a bus with the driver's kid in a car seat.

 

Wow, a phone plan for fifteen bucks!