Getting a mortgage is a huge financial decision. It is typically the largest form of debt that people will take on in their lifetime. A loan of this magnitude can become a source of some financial stress and anxiety for a lot of people. Luckily, there are ways to reduce or possibly eliminate that stress. These tips and best practices will help when it comes to managing your mortgage.
Consider the purchase plus improvements program
Taking on mortgage debt can cause new homeowners some stress. This stress can build up quickly if you are also adding debt to your credit cards. If you are accumulating credit card debt for renovations or home improvements, you may want to consider the purchase plus improvements program. This program is a great solution for homeowners who want to make changes to their homes right when they get possession.
The purchase plus improvements program allows you to take extra funds for home improvement, then add that borrowed amount directly to your mortgage. This way, you are slightly increasing your mortgage amount and paying off your renovation loan through your mortgage payments. For most people, your mortgage interest rate is much lower than your credit card interest rate, so you will end up paying less interest through the purchase plus improvements program. This offers a way to relieve new homeowners of excess credit card debt and stress.
Pay off your mortgage sooner
If having a large mortgage debt hanging over your head causes you to stress, you can take steps to pay off your mortgage ahead of schedule.
Paying off your mortgage sooner is not only great for your stress levels when managing your mortgage, but it can also save you thousands of dollars in interest.
The two ways to speed up your mortgage pay-down are to increase your payment amount or make a lump-sum payment. When increasing your mortgage payment, some lenders allow you to double the amount you’re paying, while others allow increases ranging from 10% to 20%. Most lenders cap lump-sum payments at no more than 15% or 20% of the mortgage amount per year.
Another way to pay off your mortgage sooner is by making accelerated bi-weekly mortgage payments. This payment plan ensures that you make two mortgage payments a month, like regular bi-weekly payments. The difference with accelerated bi-weekly payments is that you end up making 26 payments a year, rather than 24 with regular bi-weekly payments. This allows you to pay off your mortgage sooner and save tons in interest.
Regardless of how you decide to pay off your mortgage sooner, be sure to check your mortgage contract to understand your lender’s pre-payment terms. Paying more than is permitted can result in pre-payment charges.
Increase your cash flow
For anyone who finds that their mortgage payments are taking a significant amount of your monthly income, you may be able to refinance to lower their mortgage payments and even possibly get a lower interest rate as well. Homeowners who have built up at least 20% equity in their home may qualify for refinancing.
The amount of built-up equity is not the only factor that determines whether you will be approved for refinancing. Your total debt service (TDS) typically must be under 44%. This means that your mortgage payment, monthly property taxes, heating costs, and any debt payments must be less than 44% of your gross monthly income.
Mortgage refinancing can also allow you access to equity in your home by replacing your current mortgage with a larger one. Those additional funds can be used to pay off other debts with higher interest such as credit cards, which would reduce your monthly interest costs and payments.
If you choose to refinance before maturity, it may result in a prepayment penalty. However, it may still make sense and save you money. Consult with me to find out if refinancing is suitable for you.
Talk to a professional
If you find yourself experiencing mortgage stress or difficulty making your mortgage payments, talk to me. I will be happy to review your situation with you and offer customized solutions to make managing your mortgage easier.
– Duane Springsteel