A home is a significant investment that comes with great responsibilities. New homeowners on par with this concept can expect to enjoy living in their house for a long time.
Aside from routine inspections and maintenance, the way you manage home mortgages will determine how you can maintain ownership even when emergencies arise. Existing homeowners have a good understanding of what mortgage lenders expect from them – even with the global pandemic. While there's an 8% uptick of foreclosures in February 2021, it's still down by 85% compared to last year.
Do you intend to buy a new home? You must be ready to handle any challenge that comes your way. Global crisis or not, life can present you with hurdles now and then.
Only when you stay on top of your mortgage payments will you be able to cope with financial predicaments.
Even before you become a homeowner, you need to be aware of the long-term journey. A mortgage may seem to be a clear-cut process – you pay your dues every month, and you're all set – but it's not.
It’s a big balancing act. Even a modest home renovation project may end up negatively affecting your finances, causing you to make late payments. Planning can help you avoid financial issues and imminent foreclosure when unexpected situations arise.
Here are nine clever ways to manage your home mortgage:
1. Always Pay your Mortgage On Time
Paying a mortgage on time is already common sense. However, many people still end up with late payments due to circumstances or an inability to keep tabs. If this frequently happens, it can ruin the credit or accrue more interest. There are two options to make the process easier for everyone:
You can also set up alarm notifications on your smartphone to avoid missing the due date if you are not comfortable with automatic payments.
2. Be Mindful of your Home Spending
Avoid borrowing money for repair or home improvement. While it may seem easy to pay these additional loans back at first, they can turn into a habit and start accumulating.
Stay ahead of expensive home repairs by dropping some money every month on a repair fund. If you are planning to upgrade your kitchen, it is better to save money for this home project than to get another loan.
3. Seize the Chance to Prepay
If an opportunity presents itself to make an extra payment to the principal on your mortgage, grab it. You can use a portion of an unexpected bonus or windfall to save interest payments throughout your entire loan payment.
Keep in mind, though, that prepaying may not be a good option in some situations. If you are in a high-income bracket but have a low-interest rate, you'll lose the tax deductions on the interest.
4. Take Advantage of your Mortgage Features
Although it is best to avoid getting another loan for a home improvement, sometimes these renovations can't wait. But before you open a new loan, check if you can borrow against your existing mortgage instead. Use mortgage features such as this to your advantage. Depending on your lender, some even offer the ability to pause the payment for a month.
5. Be Aware of Taxes and Insurance Bills
Both property taxes and insurance bills almost always go up every year. Most people often lose sight of any increase in insurance premiums because it is getting paid automatically through their mortgage.
When it comes to taxes, some banks will also automatically add this cost to your mortgage. It is best that you know how much they'll increase so you can prepare your funds ahead of time. It's also important to save receipts, especially on home improvements, as they may qualify for additional tax deductions.
6. Stop Overpaying your Mortgage Lender
If the borrowed amount is more than 80% of your home's appraised value, you may be paying private mortgage insurance (PMI). PMI can increase your interest rate by as much as 1%. However, you don't have to pay for PMI for the entire duration of your loan payment.
You can get your lender to stop requiring PMI payments by showing proof that your mortgage balance is less than 80% of your home's value. And if your balance is not there yet, do what it takes to get the loan balance down. You can also get a new appraisal for your home if the property value in your neighborhood increases significantly.
7. Quit the Habit of Refinancing
Refinancing allows you to cut down the interest rate on your mortgage by a few percentage points. It can reduce your monthly payment, allowing you to save thousands of dollars over the years. However, it would be best to perform due diligence before choosing this option.
It costs money to refinance, so it's best to check if paying for the closing expenses will not negatively affect your financial situation. Furthermore, it takes a couple of years before you see the effects of refinancing, and with the cost of living rising every year, it may not be worth it in the long run.
8. Build a Rainy Day Fund
As you use portions of your windfall for prepayment or investment, remember to allocate to your rainy-day funds as well. Try to maintain an amount in your funding that can accommodate up to six months of mortgage payments, including payments for property tax.
9. Always Keep in Touch with your Bank
Communication with your bank should not stop after you get mortgage approval. Even if you don't want to talk to them directly, try to stay up-to-date by checking their websites. The ideal approach, though, is to maintain a healthy relationship with your mortgage provider, so they can comfortably help you out when you are in a pinch.
Managing your home mortgage is simpler if you follow these nine tips. While every homeowner's personal and financial situation is different, these tips help ensure that you are always in a position where you can pay your mortgage.
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