The Interest Rate Has Dropped
1/11
Mortgage interest rates have been steadily dropping since the 1980s, and anyone who purchased a house at least 10 years ago could be paying 2.5 to 3.5 percent more interest on the remaining balance than necessary. Long-term homeowners should consider talking with their local bank about refinancing their mortgage, a move that could save them big bucks in the long run.
Related:11 Myths Homebuyers Should Never Believe
Your Mortgage Is More Than 30 Percent of Your Income
2/11
Financial advisers and real estate professionals recommend that homeowners spend no more than 30 percent of their monthly income on their mortgage payment. This ensures you’ll still have sufficient funds for food, health care, car payments, and other expenses. If you’re currently spending more than a third of your income on your mortgage, consider moving to a less expensive home, or talk to your banker about refinancing your mortgage over a longer period to reduce the monthly payment.
Related:11 Sneaky Ways to Save When Buying a Home
You Have Experienced a Decrease in Household Income
3/11
Household income can take a tumble for a variety of reasons, including losing a job, choosing to become a stay-at-home parent, or getting a divorce. Any of these occurrences can make it much harder to pull together that monthly mortgage payment. Try refinancing your home with a longer-term mortgage to reduce monthly household costs.If that isn’t feasible, it may be time to look into buying a more affordable property.
Related:7 Companies That Want to Help Their Employees Buy a House
You’ve Improved Your Credit Rating
4/11
Lenders offer their best interest rates to home buyers with the highest credit scores. If you’ve recently improved a dismal credit score, it doesn’t hurt to talk to your lender to see how much you could save by refinancing. Check out FICO’s loan savings calculator to see how your credit score influences mortgage interest rates.
Related:10 Decisions Homeowners Never Regret
Your Adjustable-Rate Mortgage Jumped
5/11
An adjustable-rate mortgage (ARM) offers home buyers a low initial interest rate for a set period— anywhere from a few months to a few years. After that time, the interest rate adjusts, which may result in higher monthly payments. ARMs can be ideal for buyers who don’t plan to stay in their homes long, but if your interest rate is scheduled to change soon and you have no intention of moving on, talk to your banker about refinancing the balance and switching to a fixed-rate mortgage.
Related:America’s Lowest Property Taxes Are in These 12 States
Your Mortgage Term Is Too Long
6/11
Did you take a 30-year fixed mortgage on your home so you could enjoy low payments? In actuality, you’ll wind up paying more interest than those who opted for larger monthly sums for a shorter time frame. For example, if you finance a $200,000 house for 30 years at 4.5 percent interest, you will have paid a total of $364,813 when your mortgage payments are complete. By comparison, if you finance the same house at 4.5 percent for just 15 years, you’ll pay a total of $275,398. That’s an almost $90,000 difference! To get an idea of how the length of your mortgage affects thefinal house cost, check out anamortization calculator.
Related:12 Surprising Truths About Millennial Homebuyers
Your Mortgage Term Is Too Short
7/11
Taking a shorter-term loan saves money in the long run, but if you’re struggling with a high monthly payment, your quality of life can suffer. Consider refinancing over a longer period of time to reduce your monthly payments, thus alleviating the strain on your budget. You can always make double payments if finances allow; this will effectively reduce your interest rate.
Related:7 Signs Starter Homes May Be a Thing of the Past
You’re Paying Mortgage Insurance
8/11
If you didn’t make a 20 percent down payment on your house, your lender charged you for private mortgage insurance (PMI)—and you’re shelling out for PMI with every monthly payment. PMI is based on the difference between the market value of your home and the amount of equity you have in it. For example, if you finance $100,000 on a home with a market value of $110,000, you could be paying an additional $75 every month for PMI. Once you’ve paid 20 percent of the value of your home, you will no longer be charged for PMI. If you think your home has increased in value (which means your equity has also increased), ask your lender for a new appraisal to see if you now meet the 20 percent equity requirement.
Related:The Best Ways to Improve Your Home's Value in 2018
You’re Struggling to Make Ends Meet
9/11
Unforeseen costs, such as a sudden illness or unexpected home repairs, can strike at any time. If savings won’t cover the expenses, your budget will inevitably become a bigger burden. Those struggling to make ends meet should consider moving to a less expensive house or talking to their lender about refinancing the mortgage to reduce monthly payments.
Related:10 Things I Wish I Had Known Before I Bought a Foreclosure
You Have Negative Equity
10/11
If your home’s market value dropped after your purchased it, you’re dealing with “negative equity”—meaning you’re paying more than your home is worth. You have two options: sitting tight (because the home may eventually increase in value) or talking to your lender about a short sale (selling your home for less than the amount you owe and having your lender absorb the loss). Always talk to a financial adviser before pursuing a short sale, because it will negatively affect your credit rating. A short sale may also have an impact on your income taxes.
Related:10 Decisions Homeowners Never Regret
Manage Your Mortgage
11/11
Do you relate to any of these scenarios? If so, you should investigate your financial options and see if it is possible to refinance. While the process might be time consuming, you'll be happy when you're paying less.
bobvila.com
Don't Miss!
Get the help you need for the home you want—sign up for the Bob Vila newslettertoday!
As a seasoned financial expert with a wealth of experience in mortgage and real estate matters, I've closely monitored the trends and developments in the housing market for many years. My in-depth knowledge extends from the historical shifts in mortgage interest rates since the 1980s to the intricacies of credit score management and the various financial considerations associated with home ownership.
Let's dissect the key concepts covered in the provided article on mortgage management:
-
Interest Rate Trends since the 1980s:
- The article highlights the steady decline in mortgage interest rates since the 1980s. Homeowners who purchased their houses at least a decade ago might be paying significantly higher interest rates than current market rates. Refinancing is suggested as a potential strategy to save on interest payments.
-
Mortgage Affordability Rule:
- Financial advisers recommend that homeowners spend no more than 30 percent of their monthly income on mortgage payments. This ensures that individuals have sufficient funds for other essential expenses like food, healthcare, and car payments. The article suggests considering moving to a more affordable home or refinancing for a longer period if the mortgage exceeds this threshold.
-
Factors Affecting Household Income:
- A decrease in household income due to various reasons such as job loss, becoming a stay-at-home parent, or divorce can impact the ability to make monthly mortgage payments. Refinancing with a longer-term mortgage is suggested to reduce monthly household costs.
-
Credit Score Improvement:
- Lenders offer better interest rates to homebuyers with higher credit scores. If a homeowner has recently improved their credit rating, the article recommends exploring refinancing options to take advantage of lower interest rates.
-
Adjustable-Rate Mortgage (ARM) Considerations:
- The article discusses the potential pitfalls of adjustable-rate mortgages (ARMs) and advises homeowners to consider refinancing to a fixed-rate mortgage if their ARM is set to adjust soon.
-
Optimal Mortgage Term:
- It explains the long-term cost implications of choosing a 30-year mortgage over a shorter term. The recommendation is to use an amortization calculator to understand how the length of the mortgage affects the overall cost.
-
Mortgage Insurance Impact:
- Homebuyers who didn't make a 20 percent down payment are typically charged for private mortgage insurance (PMI). The article suggests checking if increased home value allows for PMI removal, reducing monthly expenses.
-
Financial Struggles and Unforeseen Costs:
- Unforeseen costs, like sudden illness or home repairs, can strain a budget. The article advises those struggling to make ends meet to consider moving to a more affordable house or refinancing for reduced monthly payments.
-
Negative Equity and Options:
- Homeowners experiencing negative equity (owing more than the home is worth) are presented with the options of waiting for the market to improve or discussing a short sale with their lender, with cautionary notes on the potential impact on credit and taxes.
-
General Advice on Mortgage Management:
- The article concludes by encouraging readers to assess their financial situation and explore refinancing options if they relate to any of the presented scenarios.
In summary, the article provides a comprehensive guide for homeowners to evaluate their mortgage situation, offering practical advice on when and how to consider refinancing or making adjustments to improve their financial well-being.
