A Guide to Managing Your Mortgage Payments

Getting approved for a mortgage is a major financial milestone. However, getting one is just the beginning. You also need to manage the payments wisely. For most households, the monthly mortgage payment is the biggest expense. Managing it properly will result in savings and ensure that you won’t be late in paying the monthly installments.

Check the Mortgage Statement

It is important that you received the proper address from your mortgage provider. When you finalize the loan agreement, you will receive the first payment coupon from your agent. But you are the one responsible for paying on time each month.

The mortgage statement comes each month and contains the contact information of the customer, service of the mortgage provider, amount due, fees and other charges, interest rate, and information about late fees and past due payments.

You should check the statement every time it arrives. That way, you can spot errors immediately. If you find any mistakes, or you have any questions about the statement, contact your loan provider right away.

Make a Budget

The best way to make sure you have money to pay the mortgage monthly is to make a household budget. It is important to stick to the budget. Just make sure it is flexible enough so that you can adjust it depending on your financial situation. Having a budget will also help you stay in total control of your money and plan for the future.

Avoid Spending Extra Money

Buying a new house can make you want to fill it with new stuff. You might want to buy new furniture, appliances, and other things for your new home. You should avoid making new purchases, though, if you don’t want to overstretch your budget.

Spend slowly and schedule all your expenses. Don’t buy all that you want on the same day you closed the deal on the property. You should consider what you really need for the house and schedule the expenses properly.

Set Up Automatic Payments

One way to keep your mortgage current is to set up an automatic payment with the mortgage provider. You can also set it up with your credit union or bank.

Prepaying the Debt

If you can afford it, making additional payments to the principal can help make your mortgage more manageable. Even a small additional amount monthly can save you thousands in interest payments.

However, you should not consider paying off the balance early if you enjoy low-interest rates and belong in the high income. Doing so will cause you to lose the tax deductions on the interest that is part of the payments you make.

Look at the Penalties

Some fixed-rate mortgages don’t allow you to repay them as fast as you would like. However, some fixed-rate loans allow you to pay 10 percent of the debt yearly. Lenders want their clients to pay off the debt slowly, so they can earn more in interest payments.

If you want to make additional installments, you should first check with the lender if there are penalties. If there are, you should consider investing your extra money in high-yield financial investments or put it in a high-interest account.

Once the fixed-rate period ends, you can pay the lump sum off the remaining balance of the loan. You can also consider changing over to a flexible loan that allows paying additional installments without penalties.

Find Out if You Are Overpaying

If the down payment amount is less than 20 percent, then you might have to pay private mortgage insurance. That can increase your interest rate by as high as 1 percent, which adds hundreds of dollars to your monthly installment.

You can remove the private mortgage insurance by showing proof to the lender that the mortgage balance is already lower than 80 percent of the property’s value. You can reduce that balance by making extra payments.

If property values are increasing in your neighborhood, get an appraisal. You should also ask your lender what you need to do to remove the private mortgage insurance.

Refinancing

There are instances in which changing the structure of the mortgage can save you money. You can switch the $5000 loan with bad credit from a variable rate to a fixed one. You might also take the loan to another bank or lender to have it refinanced.

Before refinancing, however, you should check the potential savings and costs. If the time it takes for the savings to outweigh the expenses is long, it might be best not to change your mortgage. Switching from one type to another with your current provider might come with a fee of several hundred dollars.

Taking the mortgage to another company may or may not be more expensive, depending on the deal offered by the loan provider and other circumstances. Some of the costs include early repayment fees, application fee, and a valuation bill.

Most companies try to attract new customers by waiving application fees or by not asking for a valuation. Make sure you have everything in writing before committing to a new lender.

Handling a Missed Payment

If you miss a mortgage payment by only a few days, you are not likely to pay a late fee. Most lenders offer a grace period of approximately two weeks. During that grace period, you can make the payment without additional charges. However, you are going to pay late fees if you fail to pay before the extension period ends. Late payments will make your credit score drop.

If you know you are going to miss a payment, contact your lender as soon as possible. Missing several payments has a negative impact on your credit record. It can also result in a default on the loan. If you are having a difficult time, the lender can come up with a payment plan to help bring your account back on track.

Some lenders allow you to have a mortgage holiday or a repayment holiday for a maximum of three months. You don’t need to pay anything during this period, but the lender still charges interest. You should use repayment holidays as the very last resort because it will end up making the debt more expensive.

Instead of a mortgage break, you should try to discuss with your lender about extending the loan period and any other ways that would make the repayments more affordable, according to your situation. If your financial problems are not likely to change any time soon, the lender might agree to change the repayment scheme. This could lead to an increase in the total amount you need to repay because you are paying more interest.

Use Your Equity

The equity in your home is its value of the house minus the amount of the mortgage. You can use it as a source of low-interest funds for major investments. You can get a home equity loan or a line of credit to gain access to cash if you want to finance a renovation or other expenses.

You can also use the equity to consolidate debts that have high interest payments. However, you should be careful about using the equity in your home. The collateral for the loans is your house. Failure to repay the debt would result in losing your own home.

You should avoid the headache of a foreclosure by managing your mortgage payments properly. Follow the tips outlined here, and you will not have problems with your monthly payments.