The No. 1 Tip To Pay Off Your Mortgage Early

Your home is a great source of pride. By implementing this tactic, you can call it all yours even sooner.

Your loan term might be fixed, but it doesn’t have to dictate when you’ll be mortgage-free. Find out how to speed up the process.

A lot can happen in 30 years. Kids become adults, jobs change, and life goals are accomplished and reset. Change during such a lengthy period is inevitable. But if you’re a homeowner, there’s one thing that won’t change: Your obligation to make a monthly mortgage payment.

The good news? A loan term doesn’t have to dictate when you free yourself from this financial commitment. There are a few tried-and-true ways to cut the ties early while lowering the total amount paid in the process. Follow these recommendations, including the No. 1 tip to pay off your mortgage early on your home, whether it’s in Seattle, WA, or Boston, MA.

5. Refinance into a 15-year mortgage

Cutting your loan term in half is a big financial step, but the benefits are substantial. Not only will you shorten the payoff time, but you’ll also be rewarded with a lower rate and pay significantly less in interest over the life of the loan.

The key here is determining whether you can shoulder the larger monthly cost that comes with a 15-year mortgage. Pamela Capalad, CFP and founder of Brunch and Budget, explains, “The downside is, you’ve locked in a much higher monthly payment. Make sure you have the cash flow to afford this new monthly payment on a regular basis.”

Not completely confident in your ability to commit to a higher monthly payment? Fake a 15-year mortgage by challenging yourself to make the payments you would be making if you had locked into a 15-year mortgage. Then, if financial circumstances change, you still have the flexibility to return to a lower monthly payment.

4. Refinance into a lower rate but keep payments the same

The benefits of refinancing your loan but sticking to the same payments are twofold: You will pay less in interest over the life of the loan and create a shorter path to mortgage freedom. Plus, it’s not as drastic as jumping from a 30-year mortgage to a 15-year mortgage.

However, it’s important to do a bit of research before you refinance. Closing costs for refinancing are generally lower than if you were to purchase a new home, but they’re still an added expense. Your new interest rate should be low enough to negate the cost of refinancing, or you should be planning on staying put long enough to reap the benefits of a smaller rate. (Use the Trulia refinance calculator to see if this is a good choice for you.)

3. Get rid of private mortgage insurance (PMI)

If you financed more than 80% of your conventional mortgage, chances are, you are paying private mortgage insurance to protect the lender in case of default. Redirecting this amount — usually 0.05%–1% of the loan amount annually — to the principal on your mortgage can have a big impact over time.

You can request to get rid of PMI once you reach an 80% loan-to-value ratio, but the lender is required to remove it after you’ve reached a 78% loan-to-value ratio. You can speed up the process by increasing your equity through home upgrades, or, if the home has already increased in value for other reasons, you can opt to refinance. Some lenders may even allow you to get an appraisal to show the new value and your increased equity — without paying for a refinance.

2. Put those windfalls to work

Maybe your monthly budget doesn’t have wiggle room and paying the costs to refinance isn’t in the cards. There’s another option.

Tax returns, bonus checks, and inheritance payments present the opportunity to pay off a chunk of your mortgage without feeling the pain in your monthly budget. This could mean thousands of additional dollars chipping away at this massive financial responsibility each year. Sometimes your money could be better spent elsewhere — like paying off high-interest debt — but if wiping out your mortgage early is a priority, this is a great place to start.

1. Make extra or higher principal payments

Jennifer Harper, CFP and director of Bridge Financial Planning, says one small change can make a world of difference. “Even small [additional] principal payments add up over time! On a $150,000 loan for 30 years at 3.75%, with no additional payments, more than $100,000 will be paid in interest over the course of the loan. By adding just $100 per month in principal payments, the total interest paid is reduced by nearly $25,000 and the loan will be paid off more than six years sooner!”

Another way to do this is by making biweekly mortgage payments. Instead of making 12 monthly payments, this equals out to 26 half-payments — or 13 full payments — per year. But beware, explains Harper, not all loan servicers make it easy to apply these extra payments to the principal. Make sure to speak to yours and ensure they aren’t simply holding on to the extra money and applying it toward the interest.

The bottom line: Choose what works for you

Which method should you choose to pay down your mortgage faster? That depends, explains Pamela Capalad.

“Choose the option that resonates the most with you based on your current financial situation and any possible changes you foresee. If you have a steady job or career that you feel confident will last in the long term, it might make sense to refinance to a shorter term. If your income is a bit less consistent, you may want the flexibility of making additional payments when you can.”

Posted by Kayla Albert on Trulia

 

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How Will Britain’s Exit From the EU Affect U.S. Mortgage Rates?

Shutterstock ID 421081036; PO: Cat Overman

Shutterstock ID 421081036; PO: Cat Overman

Thirty-year fixed rates approached all-time record lows in the wake of the vote. Will they continue to drop?

Financial market turmoil can be good for mortgage rates. Don’t forget this concept as you continue to read headlines about how a “Brexit” is wreaking havoc on markets.

Brexit is slang for Britain’s vote Thursday, June 23 to exit the European Union (EU), which is a political and economic union allowing free trade and movement of people among 28 member countries.

This outcome was unexpected, and caused stock markets around the world to nosedive.

Mortgage rates approach record lows

The Brexit vote also caused U.S. mortgage rates to nosedive. Rates were down .125 percent the day after the Brexit vote, and are now approaching all-time record lows as30-year fixed rates move below 3.5 percent.

Why? Because Brexit uncertainty is causing investors to sell riskier global stocks and buy safer U.S. mortgage bonds — which are among the safest bonds in the world because they’re comprised of U.S. home loans approved using the strictest guidelines in decades.

When bond prices rise on this buying, bond yields (or rates) drop. When rates drop, it’s often a good time to refinance your mortgage.

To put it in perspective: On a $300,000 loan, if you refinanced at a rate dip of .25 percent, your payment could be lowered by $42 per month.

Mortgage rate outlook from here

When markets are driven more by politics than economics, rate movement will be especially unpredictable. If this Brexit-driven rate dip meets your financial objectives, you should work with your lender to refinance at this lower rate.

Some projections call for rates to rise gradually as Brexit concerns wane, but, conversely, there is also a growing consensus that ultra-low rates may be here to stay.

If you have the stomach to watch rate markets a bit longer, Brexit isn’t the only factor driving lower rates. Forthcoming Brexit negotiations may inspire other EU countries to seek independence, which would fuel market turmoil and keep U.S. rates low.

This sentiment has already caused the Federal Reserve to pause its rate hike campaign, citing non-U.S. factors as contributing to increased risk of U.S. recession.

These conflicting predictions mean rate movement will be especially unpredictable in the coming months, so it’s best to lock rate dips that meet your financial objectives. Your lender can help you with your objectives and mortgage math.

Tips for refinancers

Thinking of refinancing to take advantage of the low rates? Here are a few tips.

  • Ensure your lender is quoting correctly. Rate quotes are predicated on a loan closing in a certain number of days. Longer rate locks have higher rates, and lock extensions can eat away refinance savings. If you see one rate quote lower than another when you shop, ask that lender what their rate lock period is, and make sure they can close your loan within their rate lock period.
  • Ask about timing. Lenders get extremely busy during rate dips, so ask your lender to confirm that they’re quoting a rate that allows them enough time to close your loan. (If they can’t, you can look into finding a new lender.)
  • Don’t forget your second mortgage. Your second mortgage holder must agree to the terms of your new first mortgage refinance before the refinance can close. This is required even if you have a Home Equity Line of Credit (HELOC) with a zero balance. This step will add time to the process, so make sure lenders you’re shopping with know this as they’re quoting rates.
  • Get ready to provide documents again. Even if you refinance with a lender you’ve worked with before, federal laws require them to update your employment, income, asset, and debt documentation for a new loan.

When do refi costs break even? A typical refinance costs $2,000 to $4,000, depending on your market. Interest cost savings from the refi should repay closing costs within 24 to 36 months. A refinance calculator can help you estimate your breakeven time.

And don’t forget that a “no-cost” refinance isn’t actually without cost. You’re just accepting a higher rate to enable your lender to credit closing costs. Make sure your lender compares long-term savings of cost vs. no-cost refi options.

Reminder for home buyers

A rate lock runs with a borrower and a property, so as a home buyer, you cannot lock a mortgage rate until you’re in contract to buy a home.

Rate dips like the current one tipped off by the Brexit vote benefit you as a home shopper because you’ll likely get to lock a lower rate when you get into contract. But until then, you’re subject to daily rate market movements.

Posted by Julian Hebron on Zillow

Want to Refinance to a Shorter Mortgage? Here’s What You Need to Ask Yourself

Has your financial situation improved greatly since you first took on your mortgage? That’s great! You have some options, including paying off your current mortgage ahead of time or refinancing to a shorter term. When it comes to the former option, it’s important to make sure there isn’t a prepayment penalty and that your credit is in good shape. When it comes to the latter option, we’ve some more information for you. Check out the factors below to help you figure out if this is a good decision and how you might go about refinancing to a shorter-term mortgage.

-Oxford-/iStock

The benefits of a shorter mortgage

Shortening your loan’s term means that you will pay less interest over the length of the loan. This means you will spend less on your home overall. You will also likely secure lower rates, but your monthly payments may be higher. It’s important to make sure this is sustainable for your financial situation before making a change. Your credit score will have a major impact on the rate you’ll be approved for, so know where you stand before you apply. You can check two of your credit scores for free on Credit.com.

If you can afford the higher payments, you will reduce your debt faster, pay less in interest and eventually be done with it altogether. Then you will be able to direct that monthly payment you had been setting aside to other financial goals. Your potential savings and home equity can allow you to make other investments or purchases, all while feeling more financially secure as you enter the next phase of life.

The precautions you need to take

You want to be sure paying off your mortgage early doesn’t pose a significant risk to your finances. The money you use should not threaten your emergency fund or other financial priorities. For example, if you can only afford to make the larger monthly payments by dipping into your savings or not contributing to your retirement fund, it likely isn’t a good idea. Since you will pay off your mortgage sooner, this will likely affect your tax situation.

Should you make the jump?

The first step is making sure changing the term of your loan makes financial sense. Calculate what you will save in interest costs over the life of the loan and compare that to what you will pay in refinance closing costs. If you will save more money than you spend, it could be a good idea.

The next step is contacting your current lender and asking them about your refinance options. Then it’s a good idea to shop around with other lenders to see if you can find better rates or terms.

This is not a decision that should be taken lightly, so evaluate the potential effects refinancing your mortgage could have on your finances before you make your choice. It may feel great to own your home outright and be mortgage-free, but not if it comes at the cost of other financial goals.

Posted by Credit.com