Got Mortgage, 4 Tips to Pay off Your Mortgage Faster
Author: Dr. Doug Willen
Many people today are unhappy with their mortgage. When we purchased our home, we talked ourselves into the idea that paying down our mortgage would get easier as the years went by. We rationalized that, in a few years we would be making more money, and even though our current mortgage payment was a stretch… It would get easier as time went by.
However, this isn’t always the case.
Some of us did make more money, but our expenses went up, too.
Some people have a variable rate, and your rate, and monthly payment may now be higher than when you first started to pay on your current mortgage.
Some people may even have a negative amortization loan. Commonly called a Neg Am, which means you pay less than your scheduled interest-only payment, and your principal actually grows each month.
This is the exact type of mortgage that my wife and I selected a few years ago, and it looked so “flexible” at the time. Ours was called an “Option Arm”, meaning you could pay one of 4 options of mortgage payments. Option one was less than interest only. Option two is interest only. Option three is a full principal and interest payment based on 30 year payoff. Option 4 is a full principal and interest payment based on a 15 year payoff. At the time, we could only afford option one, which means we would be going down the financial drain, at a rapid rate.
We, like so many others, base our budget, on option one. And now our principal has literally grown, by over $25,000 in the last few years. With the home values down in our area, we will be upside down in our house if we don’t do something to correct it. It makes me sick just to think about it.
So…What are the solutions?
Well the easiest solution is to simply pay more money each month towards your principal. This works.
But the problem is… “Where does the extra money come from?”… Do you have it lying around? How much more can you send in each month, and how many months in a row, can you keep that pace? But if you could send it in, you would be out of your mortgage many moons faster!
Another good idea is the Bi-Weekly plan. Bi-weekly, is simply paying your existing payment, in two chunks, twice per month, instead of once. For example, if your mortgage payment was $1000. Sending in $500 twice per month is an effective strategy, for paying off your mortgage faster. It has the potential to knock off, 5-7 years on a brand new 30 year mortgage. I never figured out, why less than 2% of Americans take advantage of this technique.
A new idea that I’m now utilizing is a Mortgage Software program. It takes complicated mathematical algorithms, and delivers it to consumers in an easy to use software format. The goal is to pay off your mortgage as fast as possible. The results are most people, will pay off their house 50% faster, without doing a refinance. My mortgage was reduced by 16 years. Not bad.
Another, tip is to refinance at a lower interest rate. We may actually be seeing lower interest rates on the horizon. We’ve seen a drop in the beginning of 2008 already. Be careful, to really do your homework, and shop around. Compare all the hidden costs, too. Some lenders offer a better rate, buy you pay a higher closing cost. So, really crunch the numbers, and make sure it’s a good deal, before you sign.
Who Needs A Mortgage?
Author: Seymore Hennigan
Who needs a mortgage? Well, nearly everyone in North America who plans to own their own home. Interestingly enough, when you look at the Latin roots of the word “mortgage”, you’ll find two terms – mortuus which means death, and gage which means grip. So the term “mortgage” actually means death grip… pretty fitting when you think about it.
Nobody WANTS a mortgage, but most people do find themselves needing one in order to purchase a home. Very few people would consider themselves “mortgage experts” however – and most of those who would call themselves that are the ones selling a mortgage…which means that they’re probably not your best bet for solid advice.
When looking for a mortgage, many creatively named fees tend to show up, such as an “underwriting fee”, a “document review fee”, “loan preparation or origination” fee, and more. These fees are unnecessary, and often not included in a mortgage broker’s ‘good faith’ assessments beforehand. Depending on your broker, they may present you with the new fees in addition to your mortgage as indicated in their assessment, and give you the “take it or leave it” ultimatum.
By that point, most people are either tired and frustrated with the mortgage shopping process, or they feel that they have no other option, and are concerned that they may not get the house they’ve set their hearts on if they keep looking elsewhere, so they accept the additional charges.
In most cases, your best bet is to deal with a direct lender rather than through a middleman like a mortgage broker. Look for a no-cost, no-fee mortgage, and ensure that all fees are reflected on the “good faith” assessment performed by your lender before you accept the mortgage.
The last point to keep in mind is the length of the mortgage – a longer mortgage means lower monthly payments but more money out of your payment overall. So the faster you can afford to pay off your mortgage, the better – comparing a $300,000 mortgage at 6.5% with a 25-year term to the same mortgage with a 40-year term, the monthly payment would be around $2,000 and the total interest payments would be around $300,000 in the 25-year mortgage.
In the 40-year mortgage, monthly payments would be around $1,750, but the total interest paid out would top $534,000. So shorter is better. There are many pitfalls when finding a mortgage, but with some time and effort there are resources available to help you. Be sure to look around online for more info on effective mortgage shopping.