It’s a dream for many families to own a home. Keeping your home also means managing your mortgage. The best way to manage your mortgage includes the following tactics:
Pay Your Mortgage on Time
Your mortgage payment is one of your most important bills. It is crucial that you make every payment on time. When you pay your mortgage on time, you are one step closer to a fully paid home. In addition, on-time payments improve your credit.
One of the best ways to make sure that your mortgage payments are on time is to use your credit union’s auto-pay option. You can schedule your payments in advance. The online process enables you to time the payment just right. Online payments are easy to set up and usually free.
Create a System to Pay Your Mortgage on Time
Set up automatic reminders to make sure that you have paid your mortgage. If, for some reason, you are unable to make a payment, contact your lender immediately. Explain your situation and work with the lender to make your account current.
What to do if you can’t pay your mortgage?
There may be options for you if you can’t pay your mortgage. Mortgage assistance programs such as loan modification and forbearance might help you avoid foreclosure even if you can’t afford to make your usual monthly home loan payment. Guard against predatory lenders and loan modification scams.
If you can’t avoid missing a payment or you are already behind on your home loan, here are steps you can take.
Contact Your Lender
If you can’t make the mortgage payment, don’t wait until after the due date. Contact your lender right away. There is no need to wait until you have missed a payment or two. As soon as you know that you can’t make a mortgage payment contact your lender. The sooner you ask for assistance the more options you may have.
Call your lender and ask for mortgage assistance. Before you call, make sure that you have the following ready:
- Your recent mortgage payments.
- Your estimated current and future income.
- An estimate of all of your bills and expenses.
- Documents supporting the fact that you can’t pay your mortgage. Lenders usually refer to this as “hardship.”
Forbearance: Short-Term Mortgage Assistance
If you qualify for mortgage forbearance it will either reduce or suspend your mortgage payments for some time. You will work with the mortgage lender to set the terms of the forbearance. The duration is set by the lender and it is influenced by your situation.
Even if you qualify for short-term mortgage assistance, the interest will continue to accrue on your mortgage. At the end of the forbearance period, borrowers will have to make up the skipped or reduced amount on a mortgage lender-approved timeline.
Some lenders may not report forbearance to credit bureaus as long as you are making mortgage payments on time. Even if the short-term assistance program dings your credit, it will hurt your credit score much less than a missed payment or foreclosure.
Loan Modification: Long-Term Mortgage Assistance
With a loan modification, the borrower and the lender agree to new loan terms without refinancing. The loan modification might include lengthening the term, adding delinquent payments to the loan amount you already owe, changing the loan type, or lowering the interest rate. The reason to add these loan modifications is to avoid foreclosure and to make your mortgage payments more affordable.
Even though a loan modification can ding your credit, but not as much as a foreclosure.
If you need mortgage assistance, consider the following tips:
- Document the details. Spoke with customer service? Note the name of the person. Document the date and time you spoke on the phone.
- Work with up-to-date information. You might find an old outdated article with a program that is no longer available. Ask your lender to provide you with current mortgage assistance information.
- Stay on top of due dates. Keep on top of deadlines, especially trial payment periods during loan modification.
- Remain in your home. Renting or moving might jeopardize mortgage assistance if the program requires the house to be your primary residence.
- Get expert advice. Your neighbor or friend isn’t the best source of mortgage assistance information. Your lender is best suited to tell you about your options. You can also try to speak with a Department of Housing and Urban Development counselor for free.
If Paying Your Mortgage is Not a Problem
If paying your mortgage is not a problem, you might want to consider paying it off faster. For example, you could make additional principal payments on your mortgage. When paying extra on your principal loan balance, you reduce your loan amount and save money on interest.
Set Aside a Rainy Day Fund
Unfortunately, unexpected things happen. Your house might need an emergency repair, there might be some other unforeseen expense, or you might lose your job. The rainy day fund helps you manage unexpected expenses. You should have a reserve fund that is large enough to pay all of your bills for at least 6-months.
The rainy day fund helps you in several ways:
- It provides you liquidity in case of an emergency.
- Having a rainy day fund will reduce stress in your life.
- It gives you more options.
- It creates a habit of saving.
Try to Make Extra Mortgage Payments
Paying down your mortgage is a great achievement. Making extra payments will shorten the life of your mortgage. Extra payments will help you save thousands of dollars during the life of the loan.
If you have a $225,000 mortgage with a 4.2 percent interest rate, your monthly payment is around $1,100 on a 30-year loan. (You can use this mortgage calculator to calculate your own monthly payment.)
Let’s see what happens if you pay an extra $100 each month.
Your payoff time goes from 30 years to 25 years and six months. During the life of the loan, you will save $29,415.73. You can use this extra payment calculator to see how much money you save by making extra payments.
It is a mistake to send an extra mortgage payment without specifying that it is supposed to be a principal payment. If you can make extra payments, make sure that you note that it is a principal payment.
Resist the Urge to Overspend
When you buy a house, it is easy to overspend. Buying a new TV, new furniture or new appliances is tempting. Remodeling your kitchen or your bathrooms can be tempting too. Once the bills start rolling in reality hits.
Spend slowly. Try to avoid buying on credit. It is best to save money each month and only buy when you can afford to pay cash.
Anticipate New Expenses
Moving from an apartment to a house will have new expenses. You might have been living in a condo where utilities were included in your home owner’s association fees. When you move into your new house, you might have unanticipated expenses such as a larger electric bill, landscaping service, trash service, and more. Make sure that you budget enough money to cover new and unanticipated expenses.
Your home is your biggest investment. Treat it accordingly. Always make your mortgage payments on time. Work with your lender if you have difficulties with making a payment. If at all possible, try to make extra payments to pay down your mortgage faster.