Paying Down Your Mortgage
tips on mortgage loan management
Your mortgage is one of the most important debts that you have. Paying on time, every time is goal that you must keep. So getting your mortgage paid off is good financial goal.
You can payoff your mortgage in about 1/3 of the time without changing your current monthly payment or cash flow position. More information below.
Managing Your Mortgage Loan
Your home mortgage is your most important debt obligation.
It should be the first obligation that gets paid each month.
If you find yourself unable to make your mortgage payment, discuss your situation with your lender. In most cases, they may be able restructure your loan that meets your budget.
Some important rules on home mortgage management.
Paying On-Time, Every-Time:
It is extremely important that you make your mortgage payment on time each month for the amount required.
Missing a payment, or even being late a few days, can cost you extra fees and affect your credit report.
If circumstances prevent you from making timely payments, contact the lender 5-10 days prior to your payment due date and explain your situation. Many lenders will work with you to prevent costly fees and adverse credit conditions.
Some procedures that you can take to avoid any payment problems include:
- automated draft
- automated bill payment
- online bill payment
- bill payment services
- payment exchange services
What to Do About PMI
No More PMI:
Private Mortgage Insurance (PMI) is required for all home buyers who did not meet the 20% or more down payment requirement for home purchase.
Lenders will make loans at lower down payments provided that the home buyer gets Private Mortgage Insurance (PMI).
For more information about PMI: www.privatemi.com
Question: when does PMI stop?
You can cancel your PMI when the lender can be assured that the appraised value of the home has met the 80% threshold.
But note: you must initiate the cancel order the lender will not do it for you unless:
- you purchased your home after July 29, 1999
- you reached the 22% of the original property value
- in which case the lender must automatically terminate PMI
more information about PMI at our affiliated site: PickMyMortgage.com
If you repeatedly fail to make your mortgage payment on time,
Your lender has the right under the mortgage contract to enter foreclosure proceedings.
Foreclosure proceedings can vary by state and type of home (FHA, VA, etc.). A foreclosure on your property can result in your eviction from your property and the sale of your home to recover the lender's cost.
You will want to avoid foreclosure proceedings
Always make your minimum payment on time at the mount required. Foreclosure proceedings can force you out of your home and damage your credit rating.
Unfortunately, circumstances may force you into foreclosure loss of job, loss of income, divorce, death, injury, etc.
If you face any of these situations where you are unable to make timely payments, please note two important points:
- Protect your credit rating:
Contact your lender if you are unable to make timely payments. They will most likely help you out. Any foreclosure can damage your credit.
- Protect your home investment:
If you have substantial equity in your home, you will want to protect it. Entering into foreclosure can wipe out everything that you have gained over the years.
When lenders repossess your home, they are not interested in getting your value out. They are only interested in recovering their loan money even at a loss to you if necessary.
With these two concepts in mind, here are some guidelines to consider when you are near the threat of foreclosure:
1: Discuss Your Situation with Your Lender
Lenders do not like to foreclose on homes. It is costly.
Foreclosure is their last resort when other actions to recover their costs fail.
You need to contact the lender early when you anticipate payment problems. Waiting for the lender to contact you AFTER failing to make timely payments is not a sign of good faith.
Lenders will try to work with you to develop a plan that will avoid foreclosure.
They may re-negotiate the terms of the loan where you can temporarily make 1/2 of the payment, for example, until you can get your life back on track.
by building a history of timely payments with your lender allows the lender to work with you under favorable terms.
Lenders are more willing to work with "good" customers during hard times than with a customer who has a history of late or missed payments
2: Sell Your Home to Protect the Investment
If you have built enough equity in the home, you should try to recover your full investment.
Consider putting your home up for sale YOURSELF and using the proceeds to pay off the mortgage loan.
This is certainly not the most favorable option, but it does protect what equity you have built over the years as long as you can sell your home without paying real estate commissions.
We have tips on "For-Sale-By-Owner":
click for our 5-Step Plan at our SayHomeSell.com module
The home sale will force you into another place, perhaps a less expensive home or into a rental.
Consider this a temporary set back until you can recover to assume another mortgage.
3: Seek Credit Counseling
There are a number of agencies that can help you avoid foreclosure.
They will contact the lender (plus other creditors) to develop a plan that will help you through hard times.
You should contact these agencies before missed payments to avoid damaging your credit report. Here are some places to start:
4: Have Your Lender Sell Your Home
Some states allow for the "short sale".
This is where you and your lender agree to sell the home at market value. The sale price than goes to the lender and payoffs the mortgage loan
Another option is to sign the title of your home over to the lender.
The lender will then put your home up for sale, during with time you can retake the title if you repay your past debts.
The only advantage of these two options is that you protect your credit rating. You will be forced out your home once it sells, unless you can raise the money to pay back the mortgage debt.
5: Beware of Foreclosure Scams
There are parties out there that want to take advantage of your situation.
They promise everything to you, but in the end you find yourself losing your home and your investment.
View these notes on foreclosure scams:
Mortgage Pay Down Strategies
Option 1: Get a Shorter Term
Another quick way to pay down your mortgage is to start with a shorter term.
Both fixed rates and adjustable rate mortgages come with 15-Yr, 10-Yr and 7-Yr terms. You can payoff your mortgage in half the time and reduce your total interest paid by approximately 2/3rds.
view the savings below for a mortgage loan of $100,000:
15-Year 30-Year Interest Rate (APR): 7.50% 8.00% Monthly Payment: $927.01 $733.76 Number of Payments: 180 360 Total Money Spent: $166,862 $246,149 Total Interest Paid: $66,862 $164,149
Option 2: Pay a Little Extra Each Month
If you like the option of paying off your mortgage faster but don't have the finances to pay the higher monthly payment under a 15-Yr or 10-Yr term, consider pre-paying your mortgage a little each month.
Start with a mortgage loan that has a 30-year repayment term. You will be required to pay the minimum amount each month based on a 30-year amortization schedule.
You can pay a little extra each month by sending in an amount that is over the minimum amount required.
- For example
($100,000 / 7.50%APR / 30-Yr / $699.21 Payment):
If you paid $25 extra each month ($724.21), you will payoff your mortgage in 26 years and 8 months, saving you $20,663 in interest.
If you paid $100 extra each month ($799.21), you will payoff your mortgage in 20 years and 5 months, saving you $56,312 in interest.
Link to this payoff calculator to run your own numbers:
or download FREE our amortization worksheet
(Excel file): click for file
Some mortgage lenders penalize on prepayment.
If you mortgage lender has a prepayment penalty, negotiate to have that prepayment clause removed.
Also be sure to notify your lender that any extra cash over the minimum payment is for reducing the mortgage principal, and is not to be used to pay for any non-accrued mortgage interest
Some lenders maintain a window when prepayments can be made to reduce the principal.
Typically, this window is about 15 days after your monthly payment due date.
For example, if the monthly payment is due on the 15th of each month, the lender will accept your prepayment from the 16th to the 30th. Any payment received outside of this window will be used to pay accrued mortgage interest.
This window of payment is only applicable with some lenders. So check with your mortgage lender before making extra payments.
3. Accelerated (Bimonthly) Payments:
Many lenders offer the accelerated payment schedule: which allows you to pay half of your monthly mortgage payment every two weeks.
Say your monthly mortgage payment equals $1000. Under the accelerated payment schedule, you will pay $500 every two weeks.
This equals to 26 bimonthly payments, or equivalent to 13 monthly payments instead of the standard 12. You can in effect payoff your 30-year loan in 272 months.
- For example
($100,000 / 7.50%APR / 30-Yr / $699.21 Payment):
If you participated under the bi-monthly accelerated program, you will pay $349.60 every two weeks.
You will payoff your mortgage in 23 years and 3 months, saving you about $40,000 in total interest.
Link to this accelerated mortgage calculator to run your own numbers: www.dinktown.net
Another way to reduce your loan in the same way is to prepay an additional 1/12th of your monthly payment each month.
In the example above, you will add on $58.27 to your monthly payment. You will payoff your mortgage in about 23 years and 3 months, saving you about $40,000 in total interest.
Check with your lender about bi-monthly accelerated program. Or you may discipline yourself and use the prepayment option under one of the payment programs discussed above.
4. Getting Lucky
Circumstances may favor you someday with some extra money: big bonus, inheritance, lottery winnings, etc.
should you take the extra money and payoff your mortgage or invest the money into something else?
You need to run the numbers. It depends on several factors:
if your APR is low, perhaps your extra money can make a better return on some other investment check with your financial advisor
Your Income Tax Bracket:
if you are in a high income tax bracket, your mortgage interest reduction may make another option for use of the money more attractive check with your tax advisor
Anticipated Length of Stay:
you might consider moving into another house. So use the extra money as a down payment for your new home.
if you neighborhood is going down, you might consider selling instead of paying off your current mortgage.
Payoff Your Mortgage FAST!
You Can Pay Off Your Mortgage FAST!
in about 1/3rd of the time without changing your current monthly payment or cash flow position
You Will Use Your Home Equity Credit Line as your personal money account to manage cash inflow and outflow to accelerate mortgage payoff payments
Early Payoff Means Big Savings:
by paying off your mortgage early, you can save a lot of money by not having to pay all that interest to the banks see the example below
Mortgage Loan Rate Term $300,000 6.00% 360 Months Monthly Payment: $1,798.65 Total Interest Paid by Term End: $347,514 Interest Paid with 10-11yr Payoff: $117,000 Interest Savings (approximately): $230,514
Early Payoff Means Better Security:
if anything should happen to your job, health, or other unplanned event, having your mortgage free and clear can prepare you for an unexpected financial emergency.
Early Payoff Means Better Planning:
what could you do with the extra money by not having a mortgage payment how about saving for college, saving for retirement, taking some travel, etc.
Get More Information:
view our quick illustration how this program works to payoff your mortgage FAST!