Mortgage interests expenses may add hundreds of thousands of dollars to your housing expenses, over the course of your mortgage loan. Because of the large financial commitment, it is important that you follow the right practices when paying off your mortgage balance. Beyond saving money, a reduced mortgage balance should also translate into additional home equity and financial security. Be advised that your failure to make timely payments may result in mortgage default and foreclosure.
You Will Need
Section 1 – The Mortgage Contract
Note the mortgage principal, or balance, that is left to pay off. Your latest mortgage statement should present this information.
Identify the minimum monthly mortgage payment. Your full mortgage payment includes one principal and interest payment alongside a deposit made into an escrow account. The lender pays property taxes and mortgage insurance premiums through your escrow account.
Verify your payment schedule. The full mortgage payment is generally due one the first of the month. Your lender may also attach one 15-day grace period to the payment date. Late charges are applied, if the lender does not receive its full payment by the time the grace period expires.
Make a check payable to your lender for the minimum payment, and mail it off with your mortgage bill. You may also reduce the mortgage balance with an online payment. Submit the minimum payment before the end of the grace period, if possible.
Section 2 – Your Personal Finances
Calculate your free monthly cash flow. To do so, you will review banking statements and pay stubs to subtract your monthly expenses from monthly income. The resulting monthly cash flow amount may be spent to build savings or pay off debt.
Determine your current mortgage interest rate. Fixed-rate mortgages charge the same interest rate throughout the loan term, while adjustable-rate mortgage (ARM) rates may fluctuate each month.
Analyze your current debt and investment holdings according to interest rates and expected returns, respectively. Prioritize debt in order of interest rates. This means that you should pay off expensive credit cards, before making extra mortgage payments. In terms of investments, you may opt to put money into stocks and bonds that offer higher potential returns relative to your cost savings from paying down a low-interest mortgage.
Send in extra mortgage principal payments, after you have determined their viability relative to your other savings goals. Specifically indicate on the check and bill that the extra payments are going to pay down principal.
Mortgage loan interest tax-deductions further lower the costs of carrying home loan debt. Consider these deductions when weighing decisions to send in extra principal payments against buying investments.
After 30 days of missed payments, mortgage default occurs and the foreclosure process begins. As a distressed homeowner, you may work to negotiate a loan modification, where your lender agrees to reduce the outstanding mortgage balance. Lower payments on the modified mortgage should allow you to keep the home.