How to Minimize Your Monthly Payments?
You can substantially lower your monthly mortgage payment by refinancing at a lower interest rate. If interest rates have dropped since your mortgage was issued, call your current lender to see what rates they are offering. Your lender will likely be eager to work with you, if only to keep your business. And staying with your current lender can have advantages for you, too: Because your lender already has your basic information, you may be able to save on paperwork and on some fees.
Some home buyers are combining a first and second mortgage -- or home equity loan -- with a sizable down payment, eliminating the need for PMI coverage and, as a result, reducing monthly payments. One such product, referred to as the 80/10/10, consists of an 80 percent first mortgage, a 10 percent down payment and a 10 percent second mortgage or home equity loan -- the down payment and home equity loan comprise the 20 percent down payment needed to avoid PMI.
If your current mortgage is an adjustable rate loan, you may be able to reduce your monthly payment if you check past adjustments and find an error in the calculations causing you to pay too much. (Of course, there is also the chance that you'll find an error causing you to pay too little, too.) Internal mortgage industry audits have shown that many Adjustable Rate Mortgages (ARMs) do contain adjustment errors, usually innocent ones caused by the many variables lenders work with in calculating ARM payments. And you may also be able to cancel private mortgage insurance, which covers your mortgage lender against the risk of your default. And finally, you should always be sure to take any tax credits you can for the interest you pay on your mortgage, your property taxes, and, if you purchased your home this year, any points you paid in return for a lower interest rate.
Benefits of Quick Cash with Low Monthly Payments
If you need money quickly, at a low interest rate an equity loan may be your best or only option. One of the best parts about an equity loan is that you can typically get a larger amount of money, for a low interest rate with incredibly low monthly payments. This is because your payments on an equity line are based on interest rather than on the principal of the loan you have borrowed. This is not to say you should squander the proceeds from your equity loan, but if you need money quickly and you don't have a ton of budget flexibility to make large payments towards your loan an equity line may be just the ticket. Rates on home equity loans are at an all time low. Lenders are more willing than ever to give out home equity loans for very little interest. This if for very good reason as one's house is being put as the security in the deal. For homeowners who are in need of cash, a wisely used home equity loan can be the best way to get out of debt and handle money issues. However, before taking a home equity loan it is wise to be sure that a couple qualifications are met:
- Substantial savings are preferred to have some security for yourself in case you start getting behind in payments;
- A well paying, secure job is required;
- For the above two reasons, it is recommended that young homeowners look elsewhere prior to taking this form of loan and putting their home at risk.
- Not paying it back on time: If you get into trouble by borrowing from a friend or family member, you risk losing a valuable relationship. If you borrow from a bank or credit card company, you might damage your credit rating or need to declare bankruptcy. If you default on your home equity loan, you may lose your home.
- Prepayment penalties spoil the party: Home equity loans often offer low closing costs and cheap initial interest rates. But if your loan includes prepayment penalties, you might be punished for paying off your debts in a quick and responsible fashion. For instance, if you decide to pay off your loan before the introductory interest rate adjusts higher, your lender might impose a hefty fee.
- Lenders who are too easy can make your life too hard: If your lender encourages you to borrow 120 percent more than the value of your home, you might think that you just hit the jackpot. But before you sign on the dotted line, think this through carefully. It's often dangerous to borrow more than you can reasonably afford to repay. If you borrow more than your house is worth in order to pay off those nagging credit card bills, it won't make your problems go away, and may even make them worse.
Is There Any Benefit of Paying off Mortgage Early?
Keeping a mortgage and paying monthly installments for 30 years or so makes any financial sense or not is question that your consciousness is asking from you every month while repaying mortgage amount. You are not alone; there are many borrowers with same insecurities looking to find ways to pay off early but still in the clouds being not aware of benefits of paying off mortgage before maturity.
Paying interest on mortgage at certain rate means you are earning same rate from your taxable money. Undoubtedly, your are tax sheltered with mortgage prepayments as mortgage interest rates and tax on property is tax deductible. Paying off mortgage early is a good way to diversify future tax liability as tax rates are always predicted to increase offsetting your monthly expenses.
Prepayment of mortgage amounts reduces total interest on your mortgage. However, this advantage will not be visible in early years as the amount of monthly payments remains same.
If you are in your fifties or sixties, and want to have burden free tension free post retirement life paying off is not a bad idea. At this age you won't be happy figuring mortgage payments as on of monthly expenses. Another benefit of paying off early and before retirement as that when you retire you can invest money in other government plans which are especially designed to assist citizens who are 50-60 years old.
Building home equity
The best part of paying off home mortgage I that you are building home equity. Paying off early you will realize your dream of homeownership that too with appreciated value of house.
Increase your savings
By paying off mortgages on your home before the end of term period can accelerate your savings. You can pile plenty of liquidity to either meet your future expenses or saving it for critical times.
Sense of freedom, emotionally and mentally
Speeding the process of mortgage payments means higher earnings or cutting your monthly expenses. In both the cases, this offer is going to give you dreamy nights and fresh mornings as you will free from tension of highest monthly expense.
Accelerated mortgage payments will make you debt free improving your credit ratings. This way you will be able to qualify for new mortgage and can buy another home on mortgage to build equity and can earn rental money to pay mortgage.
By the end of the year, if you see your piggybank with accumulated money, you can definitely step ahead to pay off mortgage else this money will simply seen as spare money that will be increasing your expenses.
There are also certain concerns with prepayment of mortgage like prepayment penalties, tax break, amortization schedule etc… Before deciding to pay mortgage loan early, considerations on both benefits and should be done that too with closer look at your financial circumstances.