Blog

Concerned About Your Mortgage?

Are you constantly worried about your mortgage and the longevity of your plan? Check our our five best tips to cut your payments down by weighing best practices, plans and mortgage officer recommendations.

1. Refinance to a shorter term

A 30-year home loan is a popular option for most homebuyers, however many homeowners aren’t aware of the several different terms offered by lenders. Many can offer as few as 10 years for a home loan.

What if we compared 20 to 30 years?

Most 20-year mortgages carry slightly lower rates than 30-year terms. Typically, they can be anywhere from one eighth to a quarter percent lower.

If you finance a $250,000 loan on a 30-year term at 3.75%, your combined payments would be about $1,150 per month.

Using the same loan amount, but with a 20-year term at 3.625%, your monthly payment would be $1,450.

You’d pay a few hundred more per month, but you would be mortgage-free in ten years less time... AND you save $65,000! Just think what you can save with a 10-year mortgage plan.

temp-post-image

2. Make extra principal payments

Early payoff penalties were common before the housing crisis. Now, you can pay additional smaller payments each month, or larger sums each year after receiving your tax refund.

If you took out a home loan for $300,000 on a 30-year term at 4%, that principal and interest payment comes out to $1,370. After paying this monthly 360 times, you will have paid $492,500 over the life of the loan. Yikes!

If you paid an extra principal payment of just $250 per month, you would have shaved seven years and four months off of your term. Additionally, you’d save more than $59,000 total in interest payments!

3. Recast your mortgage payment per year

Smart homeowners will choose to make one extra payment per year to pay down their mortgage faster. They do this by making bi-weekly payments rather than monthly payments.

Whether it’s done through bi-weekly payments, tax refund money, or maybe a yearly bonus, this is another great way to reduce your term!

For example, if you take out a mortgage for $200,000 on a 30-year term at 4.5%, your principal and interest payment would be about $1,000 per month.

Paying one extra payment of $1,000 per year would shave four and a half years off your 30-year term. That nets you over $28,500 if you see the loan through the end.

4. Recast your mortgage instead of refinancing

Mortgage recasting: lowering your mortgage payment without refinancing

While keeping your existing loan, you can pay a lump sum toward the principal, and the bank will adjust your payoff schedule to reflect the new balance. This results in a shorter loan term.

A major benefit to this is the fees for recasting are significantly lower than refinancing. Typically, these are just a few hundred dollars. Refinancing fees can usually range in the thousands. Plus, if you have a low interest rate, you keep it when you recast your mortgage. However, if you have a higher interest rate (anywhere above 7%), refinancing might be a better option.

5. Reduce your balance with a lump-sum payment

Making a lump-sum payment is rare, but it happens. Homeowners may come across money by means of an inheritance, large bonus or commission checks, or selling something valuable. This can be applied towards the outstanding principal balance on your mortgage.

For VA and FHA loans which cannot be recast, lump-sum payments might be the next best thing. You’ll also save yourself the bank fee for recasting.

Make sure you notify your mortgage servicer when extra money is to be put toward your principal. This can also save you from a fee.

Downsides to paying off early

Financial experts are encouraging people to put extra money into retirement accounts rather than paying off their mortgages early. Why? Because the stock market has earned an average annual return of 10% for nearly 88 years.

You can earn more by investing extra funds in the bull market than you save by paying down your mortgage. Besides, however much you spend on mortgage interest, you’d get some of those dollars back at tax time.

Paying off your mortgage early or on time depends on your situation and goals. Are you wanting to be debt-free as soon as possible? Any one of these five steps can be the right one for you.

REACH OUT

Please verify that you are not a robot.