Archives For mortgage

A mistake that many new home buyers make is not looking at the total cost of the house that they are about to buy. Only looking at the actual mortgage amount is a big mistake, as looking at that amount alone can fool you.

The principal and insurance amount of your monthly home budget can actually be relatively small when compared to the whole amount.

My friend and her fiance are looking at houses right now, and they are making a mistake when calculating their housing costs. They are looking at houses farther away because houses in the more rural areas are much, much cheaper. However, the costs that they are saving by being able to get a newly built house in a far away area are eliminated because of the long drive they will have to venture on every morning. They will both work more than 60 miles from their jobs and won’t be able to commute together.

Commuting costs should definitely be thought as, as demonstrated above! They also both have horrible gas guzzling cars, and will most likely be spending a little over $1,000 on gas every month.

When looking at houses, you should be looking at the overall costs such as the costs listed below:

1. Property taxes.

Many estimate that these will be lower, but in reality, property taxes are high. For us, property taxes equal approximately one-third of our total monthly house payment.

2. Private Mortgage Insurance (PMI).

If you don’t put a large enough down payment on the house that you are about to buy, then you will have to pay PMI most likely. This can end up being a large amount tacked onto your monthly mortgage amount, such as $50 or $150 per month.

3. Home Insurance.

The neighborhood you live in and the type of house that you buy play a big role in how expensive your home insurance will be. You can of course try shopping around to find the best price, but there can be other things making your home insurance high. If you live in a risky weather area (such as floods, high winds, tornadoes, etc.), then this will cause your home insurance expenses to rise.

4. Maintenance.

With houses, there will something that will go wrong eventually. Pipes might need to be placed, water heaters will need to be repaired and so on. Some of these expenses might be “low” and only be a couple hundred dollars, while others might be thousands. A family member needs their roof replaced, and they had multiple people bid on the replacement. The lowest bid they received was $65,000. And no, they are not being duped, they have a VERY steep roof and asbestos, so that’s the lowest that any place would offer. Keep these maintenance costs in mind!

Also, the furnace can be an expensive fix or replacement as well. A friend of mine had to spend $6,000 to get hers replaced. Keeping a home maintenance fund is very important just in case something does come up.

5. Landscaping.

Your house looks nice now, but will it require a professional person to come by every now and then to make the landscaping look the same? Will you be able to do it yourself? If you have a very large yard (acres and acres), then you will have to either hire someone to come often, or you will have to put time, labor and buy a reliable mower to cut your lawn.

6. Utilities.

Even if a bigger house may seem like a “deal,” it might not actually be. A bigger house will require more maintenance, landscaping, and higher utility bills.

7. Extras.

You might say “oh I’ll buy this house but I won’t get internet, cable, cell phone, etc. so that I can afford the house payment.” How realistic is this though? If you know that you will be buying these things, then you should budget this into your housing costs so that you aren’t running later.

 

Did you forget about any housing costs when you first bought?

Everyone dreams of the day that their mortgage for their house will be paid off right? I know I do! We bought our house around 3 years ago, and would like to have it paid off in around 4 to 5 years. We have a long 30-year loan though.

There are many reasons why people want to pay off their homes early. Maybe you just hate debt and want all of your debt to be gone. Maybe you want to retire and lower your spending so that you are more prepared.

However, I do know that not everyone is in a rush to pay off their mortgages early. Your mortgage rate might be extremely low and you might be earning a much higher return in the stock market or in your other investments, which would persuade you to invest and throw your money at your investments instead of your house.

How is it possible that we can pay off our house so much earlier than the planned 30-year loan that we have? There are many reasons for this, mainly because of the fact that we plan on paying extra large payments to our mortgage debt soon. Our goal is to make a couple thousand dollars extra towards our payments every month, and we also hope to switch our payments to biweekly if our bank allows for it.

1. Increase your payment amounts.

This one is a no brainer. If you throw more money towards your debts, then of course you can pay your mortgage off more quickly!

Another way is to make more payments towards your debt. Did you receive a bonus for the holidays, signing on with a company, or for some other reason? Put that extra money towards your debt and make a new payment!

Even if you can’t put a large amount of extra money towards your mortgage payment, even a little bit helps if it is put towards your principal. That way you are not being charged all of that extra interest anymore.

2. Increase the amount of payments that you make.

As stated above, try and apply any extra money towards your mortgage. Everything counts and one extra payment is worth it.

This also goes hand in hand with making bi-weekly payments. With biweekly payments, you make a payment every 2 weeks. There are 52 weeks in a year, so instead of making 12 payments in one year, you are making 13 payments.

You are also shaving a little off interest as well. Not all banks will allow you to do this though, so first ask your bank. You might have to sign up for some sort of biweekly plan with them.

With paying your mortgage biweekly, you will most likely be able to shave AT LEAST a couple of years off your mortgage, and it’s really just that simple!

3. Refinance your mortgage.

Mortgage rates are extremely low right now, and everyone knows that. My friends don’t have the greatest credit in the world (they don’t have a car payment or credit cards, so they haven’t been able to build their credit the normal way), but still received a 30-year loan at what I believe was a 3.2%. That is great! Our mortgage is at 5%. We should refinance.

Refinancing your mortgage might cost a couple thousand up front, but in the end, if you can slash more than 1.5% to 2% off your rate, then it is probably worth it to refinance your mortgage.

Do you plan on paying off your mortgage early? Why or why not?