Your home is likely to be the most valuable and important thing you own. Your home provides you with shelter, security and a place to raise your family. When we think of managing a home, we usually think about maintenance and upkeep, cleaning, and making sure the utility bills get paid on time. But it’s also important that we devote the same level of attention to managing our mortgages.
The proper way to manage a mortgage will depend a great deal on how big your mortgage is, your other financial obligations, and your overall financial situation.
Here is some mortgage advice and tips for finding the best way to manage your own mortgage.
Know Your Interest Rate. Believe it or not, it’s quite common for homeowners to not know the interest rate of their primary mortgage. Sometimes this is because the loan was taken out many years ago, and the homeowner has simply forgotten. Furthermore, homeowners with adjustable-rate mortgages may go through rate adjustments every year, and not know the current rate. But it’s important to know your rate because only then can you make the decision on whether or not refinancing would be a good idea for you.
Refinance Only if it Makes Financial Sense. Refinancing to a mortgage with a lower interest rate isn’t always a good financial decision. A refinancing transaction will involve several thousand dollars of fees and closing costs, so it will only make sense when the expected interest savings from a lower rate exceeds the cost of refinancing. For example, a homeowner who purchased an expensive home with a fixed 30 year mortgage just a few years ago, and who plans to live in the home for at least another 10 or 15 years, can often realize significant savings by refinancing to a lower rate. But someone who is likely to sell their home within the next five years, or who has a relatively low balance remaining on their mortgage, might not find refinancing to be worth it.
Get Rid of Private Mortgage Insurance As Soon as You Can. If you first bought your home with a down payment of less than 20% of the purchase price, you probably had to purchase Private Mortgage Insurance (PMI). The purpose of PMI is to protect your lender by having sufficient home equity in place in case you default on your mortgage. However, your PMI coverage does not automatically stop when the mortgage balance is less than 80% of the home’s value. If you’re still paying for PMI but it’s not required, then cancel that coverage immediately.
Consider Changing Your Payment Frequency. Depending on the terms of your mortgage, your lender may offer you the opportunity to make payments every other week, rather than monthly, toward your mortgage. The net effect of paying more frequently – even if the total payment amounts are nearly the same – is to pay down more of the principal on your mortgage more quickly. This shortens the term of your loan, and saves you money. Even if your lender does not offer this option directly, you can always make extra payments to reduce your overall interest expenses.
The best single piece of advice for managing your mortgage is to keep yourself informed. Knowing the terms of your mortgage, as well as your outstanding balance, will help you make the best possible decisions.
Your home is likely to be the most valuable and important thing you own. Your home provides you with shelter, security and a place to raise your family. When we think of managing a home, we usually think about maintenance and upkeep, cleaning, and making sure the utility bills get paid on time. But it’s also important that we devote the same level of attention to managing our mortgages.
