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Mortgage Payments
Mortgage payments are the periodic payments made by a borrower to repay a lender
for the proceeds of a loan. Mortgage payments can include principal repayment,
interest payments and sometimes insurance premium payments and property taxes.
Most borrowers will make mortgage payments on a monthly basis but some lenders
offer alternative payment options like weekly or bi-weekly payment plans.
It is a good idea to make the biggest mortgage payments that you can afford
to make. This will eliminate your debt more quickly and save you money you would
have forked over for interest.
When you purchase a mortgage aim for one that has the shortest amortization
period that you can afford. Amortization is the process of paying off your loan
and your amortization period will directly affect the amount of interest you
pay over time. Usually if you don’t specifically ask for a short amortization
period at the time you purchase your mortgage lenders will start you with a
25-year mortgage. If you keep the same amortization period every time you renew
your mortgage, and pay only regular payments it can take a long time to pay
off a mortgage. During mortgage amortization you will probably renew your loan
several times with your lender and if you don’t change the amortization period
your mortgage can sometimes end up costing you more than necessary.
Pre-payment is always a good way to begin paying off a mortgage. Pre-payment
allows you to take a good chunk out of the amount you owe your lender and in
the long run this payment will save you money in interest payments. Your lender’s
pre-payment options should be specified in your mortgage contract but usually
pre-payments can be anywhere from 10%-20% of the total principle owed to your
lender. Pre-payments are typically made on the anniversary date of your mortgage.
It is a good idea to ask your lender if they will let you divide the amount
of the payment and pay it in two installments over the course of a year.
Keep in mind that if your financial circumstances change during the course
of your mortgage you may be able to renegotiate the terms of your mortgage payments.
When you renew your mortgage you have the perfect opportunity to renegotiate
any rates and conditions in your mortgage that you feel need to be addressed.
If you take on a mortgage and suddenly find yourself drowning in principle
payments and interest you may want to consider either a second mortgage or mortgage
refinancing.
Some homeowners choose to invest in a second mortgage if they are able to get
better terms on their initial mortgage by purchasing another smaller second
mortgage. Others will take on a second mortgage to pay for their children’s
college tuition or home renovations. The way that this mortgage payment option
works is that the second mortgage takes second priority to the first. The first
mortgage must be paid in full before the second mortgage holder can be paid.
In other words if there are two mortgages and a property is sold, the proceeds
from the sale will be claimed to pay off a first mortgage if there is still
money owing to the initial lender.
Much like second mortgages, mortgage refinancing involves homeowners taking on
a second loan to help pay off their initial mortgage. Refinancing as a payment
option makes the most sense for homeowners who are stuck with mortgages that have
high interest rates. This option is especially relevant for homeowners whose mortgages
are at least 2 percentage points higher than the prevailing market rate. If a
homeowner is staying in the house that they are financing for a long period of
time taking advantage of mortgage refinancing can save a lot of money in interest.
Mortgage rates will play a big part in how much you contribute to mortgage payments.
Before you purchase a mortgage you should look at how interest rates will affect
that mortgage. The mortgage interest rate will determine, for the most part, whether
you will be better off with an adjustable-rate mortgage or a fixed-rate mortgage.
If interest rates are high you are better off looking into an adjustable-rate
mortgage because the initial rates are lower with this sort of plan and there
is the option of being able to take advantage of falling rates in the future.
If rates happen to be low you will want to consider looking into a fixed-rate
mortgage because by choosing this option you will be assured a low rate, and therefore
lower mortgage payments, for the duration of your loan. When you purchase a mortgage
to finance your home the general idea is to get rid of that mortgage as soon as
humanly possibly. Any way you can reduce the duration, interest rates and the
principle amount of the mortgage will save you money in the future. Mortgages
can be welcome as a way to help you get out of that tiny apartment you’re renting
for an exorbitant amount of money and jumpstart your future, but mortgage payments
can become a perpetual monkey on your back to it’s best to bid good riddance to
them sooner than later.
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