If the last time you really looked at your home loan was when you completed your purchase or refinance, it may be time to do an annual once-over.
New loan programs, eliminating mortgage insurance, paying off high-cost debt, and getting a better rate can provide great opportunities to reduce your overall monthly payments and build wealth over time. In addition, a regular review of your credit report, analyzing your impound account, and possibly adding a Home Equity Line of Credit can save a lot of headaches.
When was the last time you did a formal review of your mortgage?
Is a Fixed Rate Mortgage Still the Right Choice?
Many borrowers opt for the certainty of a 30 year fixed rate mortgage when they first get their mortgage. The monthly payment is typically less than a 15-year fixed mortgage and without the variability of an ARM.
If your timeline and goals have changed, you may want to consider other options. If you anticipate selling your home within the next 5 years, a hybrid adjustable rate loan fixed for 5 or 7 years may reduce your payment and save money over time.
If your desire is to get the house paid off prior to retirement, you may want to look at your work window and utilize a 10-year fixed or a 15-year fixed to get it paid off faster. The rate may be lower, and it often saves thousands by paying it off early.
Eliminate Mortgage Insurance?
When you purchased your home, you may have put down less than 20% on a conventional loan or used an FHA Loan. With the increase in value since 2011, many homeowners are now in a position to refinance their loans, reduce the rate, and eliminate mortgage insurance.
Mortgage insurance often is $150-$500 per month and removing it can save a lot of money each year. If you are paying $200 per month in MI, by eliminating you could save $12,000 over 5 years.
Why pay a mortgage insurance company a payment that has no benefit to you and only protects them?
Consider Paying Off High-Cost Debt:
Revolving debt (credit cards), car payments, and student loan debt can be costly with higher rates and no tax write-offs. If your home has equity, it might make sense to do a refinance, pull cash out, and pay off your high-cost debt.
Many borrowers save $250 per month and much more, not to mention the additional write-offs that come at tax time. By putting all the debt into one mortgage, you are able to write off the entire loan amount.
At a 25% tax bracket, that means with interest of $2,000 per month that could mean an additional $500 per month in tax write-offs.
Are You at the Ideal Rate for the Market?
Rates fluctuate daily and are affected by the economy and the bond market. If it’s been awhile since you got your loan, rates may have improved. It’s not that difficult to take advantage.
You can use lender credits to pay for closing costs, and you may not have to put any money out of pocket at all, once all is done and said. Hidden benefits are that you should skip one month’s payment, and if you have an impound account, that should be refunded after closing.
A ½% decrease in rate on a $300,000 loan can save about $88 per month or $10,000 over 10 years.
Are Your Taxes and Insurance Up to Date?
Even though your mortgage servicer is responsible for paying your taxes and insurance out of your escrow account, it just makes sense to periodically check to see that these payments are being made properly. You can contact your servicer and ask them to perform an impound account audit.
It is possible that the servicer under-funds the account and then required additional funds from the borrower to catch the account up. This is usually either in a lump sum or an increase in the monthly payment.
You might also want to review your homeowner’s insurance policy. It’s a good idea to check it every two to three years to make sure it covers recent home improvements, replacement costs for the contents of your home, and that its reconstruction coverage is keeping pace with inflation.
A Home Equity Line of Credit (HELOC) for Emergencies:
Many homeowners are making the proactive choice to secure a Home Equity Line of Credit (HELOC) for emergencies.
A HELOC is a revolving line of credit that only charges interest when you actually draw money out.. As you repay the balance of the draw, the credit becomes available again.
Securing a HELOC in advance can be a great help if you’re ever laid off or have an unexpected medical or other emergency.
How’s Your Credit?
The information in your credit report has a huge impact on many aspects of your life. Some of these include the cost of getting car loans, credit cards, getting a job or even purchasing products such as insurance.
The Federal Trade Commission has found that over 20% of credit reports are wrong. That’s why it’s important to periodically check your credit report.
It’s even easier to check your credit report now that the Federal Fair Credit Reporting Act (FCRA) mandates that each credit reporting company provide you with a free copy of your credit report, at your request, once a year.
Is It Time to Refinance?
With rates at lows and values up, it’s a good time to review your current situation. Consider all of the factors, and if it makes sense, run the numbers to see what a refinance can do for you.
The numbers don’t lie. Take the time to analyze your mortgage, determine what is right for you, and let us know if we can help.