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How To Repay A Mortgage
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Published: January 16, 2007
Repaying a mortgage is one of the best financial decisions a smart home owner can make. No matter how many years or months into a mortgage, there is always time to save money by reducing the amount of paid interest.
First, look at the monthly payment. This is made up of the pay principal (the cost of the house) and the interest (the money the bank charges you for taking the loan).
Is this monthly payment compatible with a budget? If not, some tough decisions have to be made.
Pay on time
Paying for both home and debt is a top priority. If payments aren't received on time, large penalties can be assessed against the account which may result in the credit score being lowered, thus affecting future purchases of anything. There is even a risk of foreclosure.
Read the mortgage information thoroughly. Late fees can start at $25 and go up to $75 per occurrence. If the mortgage payment shows up late three times a year, it might result in loss of $200! Send in mortgage payments on time. If payments are late, there is the option of wiring the money via a bank or Western Union. The small fee charged for wiring services might be a better deal than what a mortgage company would charge.
Bi-weekly
Repay a mortgage at a faster amount which will reduce interest. This can be accomplished by paying weekly or bi-monthly via a program at a bank. Usually there is a fee involved. Beware – inability to keep up the extra payment might result in an additional fee.
A handy (and free) tip is online banking. Many banks allow clients to set up a recurring payment every two weeks. Remember to make a phone call to the lender expressing that any extra payments should be applied to the pay principal. This can also be accomplished by writing an extra check each month for 1/12 of the mortgage payment. Always write apply to pay principal in the memo line. Otherwise, they might apply the extra to the interest.
Avoid Equity Loans
Avoid cashing out the equity in a home to pay off debts. This is a slippery slope that should be saved for the direst of circumstances. Not only does it incur fees, it's like starting all over again from day one. The mortgage principal is an investment. Guard it wisely and receive professional advice from many perspectives before delving into this special nest-egg.
PMI
Private mortgage insurance (PMI) is required by most lenders if a person has less than a 20% down payment toward the pay principal. This protects the lender, but allows buyers who have little or no down payment to purchase homes. PMI does not apply towards the principal or interest payment. It is best to try to pay down this amount as quickly as possible, because typically this insurance will cost 1% of the home cost. To make matters worse, the cost of this insurance is not tax deductible. PMI does not apply to FHA loans.
Experts agree that as soon as 20% equity is reached in a home, cancel the PMI. A lender is not required to notify, so a homeowner must do the research to get out of debt faster. Then, take the extra money that is saved and invest it into the principal of the home.
These few strategies may help pay off a mortgage a few years earlier by reducing interest, paying off the principal faster, and making monthly payments faster and timely.
Sources:
Bach, David. Smart Couples Finish Rich. New York. Random House. 2002
Bruss, Robert J. "Home Buying Tips – Is PMI Good or Bad?" Inman News. 2006.American Home Guides. 7 Jan. 2007 < http://www.americanhomeguides.com/homebuying_tips_ view.php?RowID=179>.
Carr, M. Anthony. "It Isn't Just Foreclosures that Limit Property." The Washington Times (DC). 31 March 2006.
Guttentag, Jack M. The Pocket Mortgage Guide : 60 of the Most Important Questions and Answers About Your Home Loan. New York. McGraw-Hill. 2004.
Hunt, Mary. Live Your Life for Half the Price. New York. DLP Press, 2005.
Hunt, Mary. "Reducing Your Mortgage Payment." AOL. 7 Jan. 2007
< http://coaches.aol.com/money/mary-hunt/reducing-bi lls>
Orman, Suze. The Nine Steps To Financial Freedom. Financial Guidebook. New York. Three Rivers Press. 2000.
Repay Your Mortgage Early. 2007. Families.com, LLC. 7 Jan. 2007 < http://finance.families.com/repay-your-mortgage-ea rly>.
First, look at the monthly payment. This is made up of the pay principal (the cost of the house) and the interest (the money the bank charges you for taking the loan).
Related Articles
Pay on time
Paying for both home and debt is a top priority. If payments aren't received on time, large penalties can be assessed against the account which may result in the credit score being lowered, thus affecting future purchases of anything. There is even a risk of foreclosure.
Read the mortgage information thoroughly. Late fees can start at $25 and go up to $75 per occurrence. If the mortgage payment shows up late three times a year, it might result in loss of $200! Send in mortgage payments on time. If payments are late, there is the option of wiring the money via a bank or Western Union. The small fee charged for wiring services might be a better deal than what a mortgage company would charge.
Bi-weekly
Repay a mortgage at a faster amount which will reduce interest. This can be accomplished by paying weekly or bi-monthly via a program at a bank. Usually there is a fee involved. Beware – inability to keep up the extra payment might result in an additional fee.
A handy (and free) tip is online banking. Many banks allow clients to set up a recurring payment every two weeks. Remember to make a phone call to the lender expressing that any extra payments should be applied to the pay principal. This can also be accomplished by writing an extra check each month for 1/12 of the mortgage payment. Always write apply to pay principal in the memo line. Otherwise, they might apply the extra to the interest.
Avoid Equity Loans
Avoid cashing out the equity in a home to pay off debts. This is a slippery slope that should be saved for the direst of circumstances. Not only does it incur fees, it's like starting all over again from day one. The mortgage principal is an investment. Guard it wisely and receive professional advice from many perspectives before delving into this special nest-egg.
PMI
Private mortgage insurance (PMI) is required by most lenders if a person has less than a 20% down payment toward the pay principal. This protects the lender, but allows buyers who have little or no down payment to purchase homes. PMI does not apply towards the principal or interest payment. It is best to try to pay down this amount as quickly as possible, because typically this insurance will cost 1% of the home cost. To make matters worse, the cost of this insurance is not tax deductible. PMI does not apply to FHA loans.
Experts agree that as soon as 20% equity is reached in a home, cancel the PMI. A lender is not required to notify, so a homeowner must do the research to get out of debt faster. Then, take the extra money that is saved and invest it into the principal of the home.
These few strategies may help pay off a mortgage a few years earlier by reducing interest, paying off the principal faster, and making monthly payments faster and timely.
Sources:
Bach, David. Smart Couples Finish Rich. New York. Random House. 2002
Bruss, Robert J. "Home Buying Tips – Is PMI Good or Bad?" Inman News. 2006.American Home Guides. 7 Jan. 2007 < http://www.americanhomeguides.com/homebuying_tips_ view.php?RowID=179>.
Carr, M. Anthony. "It Isn't Just Foreclosures that Limit Property." The Washington Times (DC). 31 March 2006.
Guttentag, Jack M. The Pocket Mortgage Guide : 60 of the Most Important Questions and Answers About Your Home Loan. New York. McGraw-Hill. 2004.
Hunt, Mary. Live Your Life for Half the Price. New York. DLP Press, 2005.
Hunt, Mary. "Reducing Your Mortgage Payment." AOL. 7 Jan. 2007
< http://coaches.aol.com/money/mary-hunt/reducing-bi lls>
Orman, Suze. The Nine Steps To Financial Freedom. Financial Guidebook. New York. Three Rivers Press. 2000.
Repay Your Mortgage Early. 2007. Families.com, LLC. 7 Jan. 2007 < http://finance.families.com/repay-your-mortgage-ea rly>.
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