Being a Homeowner is the cornerstone of the American Dream, and as such, your mortgage payment is by far your biggest monthly expense. So I think it's completely justifiable to spend some time reviewing it. In fact, don't be surprised if this brief article does wonders for your budget. Let's take a close look and see whether we can find you some major savings.
First, we will find out whether you're paying too much to your mortgage lender. This is something that is very often overlooked. If the amount you borrowed was more than 80% of the appraised value of your home, you're probably paying PMI, or private mortgage insurance. PMI payments are often expensive, undetected and unnecessary. Depending on the size of your down payment and how much your house costs, PMI can effectively increase your interest rate by as much as 1% costing you hundreds of dollars to your monthly payment.
You can get rid of PMI by providing your mortgage lender with proof that your mortgage balance is less than 80% of your home's value. This often referred to as your LTV. Do what it takes to get below 80%. Try sending in extra payments, clearly identify apply to principal to get the loan balance down and ensure you are not simply paying ahead. Additionally, you can see if housing values are rising in your community, though this is often not the case in today's market, and get a new appraisal. Take the time and contact your mortgage holder and see what you need to do to eliminate your need for PMI. By taking the monthly savings from not paying PMI and applying it to principle the savings is two-fold and immense.
The rule of refinancing is not always relatively straightforward. Many say if you can take a percentage point off the interest rate on your mortgage, you should consider it. However, there are many financial factors that can make refinancing one of the most powerful tools you have to greatly improve your financial situation. Refinancing can lower your monthly obligations, increase your tax savings, improve your overall effective interest rates, allow you to take out needed capital and execute a term reduction plan saving you thousands. What is important is making sure your entire situation is reviewed by a mortgage professional for maximum effectiveness. All too often the mistake is made that this is a simple transaction that can be done with a few clicks on the computer. This is when mistakes are made costing people thousands of dollars. Even reducing your mortgage payment by just $100 a month can save you thousands over the years. But, your entire financial picture must be examined.
