Should you pay off your mortgage early? Money Advice Service, pay off mortgage early.#Pay #off


Should you pay off your mortgage early?

With mortgage interest rates so low, some argue that there’s no point in paying off your mortgage early. Others argue that paying off debt is always a good idea in an uncertain economy. We weigh up the options, so you can decide.

Early mortgage repayment – Questions to help you decide

Should you save or pay off your mortgage early? Answer these questions to help you decide.

1. Do you have any other more expensive debts?

Expensive debts are those which cost a lot to pay off over time.

Credit cards and store cards, for example, charge a high rate of interest over the course of a year.

Other examples might include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

Always pay off more expensive debts before thinking about reducing your mortgage – but don’t rack them up again.

2. Are you putting money into a pension scheme?

Top tip

On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum will reduce the interest by £11,500 and the repayment term by 18 months.

Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief.

And, if you have a company scheme your employer might pay into the scheme too.

If you don’t have a pension and have money to spare, it’s important to think about paying into one.

The earlier you start, the sooner your retirement pot will start to grow.

So think about this before deciding to use your savings to pay down your mortgage early.

It’s also worth taking stock of any existing pensions you have to see if it’s worth paying more into them.

3. Could your family cope financially if you died?

Do you have dependants? The cost of putting in place life assurance is relatively low – if you’ve not got this already and have a family or other dependents then now’s the time to think about it.

4. Can you get a savings rate higher than your mortgage interest rate?

If you’re already contributing to a pension scheme, rather than pay off your mortgage it might make more sense to put your money into a savings account.

That’s if you can find one which pays a higher rate of interest than the rate you’re being charged on your mortgage.

To get an accurate comparison, work out what the rate amounts to, after you’ve paid tax on your savings.

Some savings accounts – such as ISAs or some National Savings Investments accounts offer tax-free returns you can benefit from.

Other things to consider if you want to pay off your mortgage early

Keep some money in reserve

Ensure you have saved enough money to keep you going for at least three months before paying off your mortgage early.

Will you be charged for overpaying your mortgage?

Check your mortgage deal to get an accurate picture of how charges can cut into any savings, which result from overpaying your mortgage.

You could be charged for paying your mortgage off early or making a monthly payment, which goes over your agreed monthly limit.

Many lenders will let you overpay up to 10% a year without penalties.

Do you have a flexible or offset mortgage?

Flexible mortgages – including offset mortgages – allow you to overpay your mortgage and then draw back the money if you need it – all without charge.

The benefits of overpaying your mortgage

If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner – sometimes even years earlier.

On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,500 and means you repay 18 months earlier.

Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on.

If you decide to overpay your mortgage

If, after weighing up all the facts, you decide to overpay, then you need to time it right.

If your mortgage interest is charged daily, then the sooner you make the overpayment the better.

If it’s charged annually, then you need to time your overpayment so that it counts towards the calculation of the interest for the year.

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  • 12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early –


    12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early

    Do I think it s wise for you to pay off your mortgage early?

    You may as well ask me if I think it is a good idea if you paint your living room sage green.

    I used to think paying off your mortgage was an absolute no-brainer.

    Then I did a complete 180, changing direction like one of those day-glo orange heliport windsocks. Oh yes, I did.

    After resurveying the macroeconomic condition of the United States and trying to interpret the future direction of its fiscal policy, I was ready to declare that maybe, just maybe, prepaying the mortgage isn t a good idea after all.

    Suddenly it just didn t seem like it made much sense to pay down a 30-year $120,000 mortgage at 4.5% interest if I truly believed that high-inflation was inevitable down the road as a result of Fed s relentlessly lax monetary policy and the current administration s plans to greatly expand the size of the Federal government and its entitlement programs.

    The question of whether or not I think you should pay off your mortgage is not as cut-and-dried as, say, whether or not I think you should pay off your credit card balances in full each month. Of course you should pay off your credit cards in full each month; but when it comes to paying off the mortgage early, there are solid arguments that can be made either way.

    Here are 12 good reasons why you should and should not pay off your mortgage early. Which ones resonate most with you?

    Good Reasons Why You SHOULDN T Pay Off Your Mortgage Early

    1. You haven t capitalized on your employer s company match to your workplace retirement plan.

    If, for example, your employer matches you dollar-for-dollar on the first 3% of your contributions to your 401(k) plan, then you re throwing away free money. If he matches even half that amount, then you re still passing on a sure-fire 50% return on your money. Opportunities like that don t come up too often. Take advantage of them when you can.

    2. You have other debt that accrues at a higher interest rate than your home loan.

    It makes no sense to pay off a mortgage if you re carrying credit card debt at a higher interest rate. When you pay off a credit card with a 15% interest rate, for example, then every dollar of debt you pay off earns you an instant 15% return. Not too shabby.

    3. You have yet to establish an emergency fund equal to at least three months of living expenses.

    It doesn t make much sense to be making extra payments on your mortgage if you can t withstand a sudden loss of income due to unemployment, or suffer a major financial expense that forces you to choose between paying the mortgage or, for example, having a major car repair made.

    4. You want to maintain more liquidity/flexibility.

    Many people like to have a ready source of funds that can be easily converted to cash in order to quickly react to business opportunities, for example.

    5. You owe significantly more on your house than it is currently worth.

    If your mortgage is upside down, the fact is you are more susceptible to foreclosure if you lose your job or suffer some other hardship that prevents you from making your payments.

    6. You have a family but haven t yet established life, health and disability insurance.

    If you are the lone bread-winner in the household, how will the mortgage be paid if you die, suffer a catastrophic health problem, or become severely disabled?

    7. You have a low fixed-rate loan and anticipate a bout of severe inflation.

    Inflation is a debtor s best friend. If you have a fixed rate mortgage with a very high balance, you might even want to root for high inflation. That s because inflation erodes the value of money, and when inflation is on the rise the value of your mortgage debt becomes less over time. For those who have fixed rate mortgages, the higher the inflation, the faster the value of that debt is reduced. Many people ask why they should pay off a fixed rate loan with more expensive dollars today if they strongly suspect those dollars will be worth significantly less within, say, the next five years or so.

    8. You are confident you can get better returns elsewhere.

    Let s say you have a mortgage with an interest rate of 5%. But in reality your effective, after-tax interest rate on your loan is less than that. If you re paying, say, 25% of your household income to federal and state tax collectors, then your effective interest rate is 25% (your tax rate) less than the original 5% or only 3.75%. After determining your effective interest rate, you may decide the bar is low enough that you d rather try earning a bigger return elsewhere.

    Good Reasons Why You SHOULD Pay Off Your Mortgage Early

    1. You re the type that believes peace of mind is priceless.

    How do you sleep at night? I know more than a few people with paid-off mortgages that swear they sleep like a baby every single time their head hits the pillow.

    2. You want to remove the cost of your mortgage from your future living expenses before you retire.

    What better way to temper the impacts of living on a fixed income than by making sure your mortgage is paid off before you retire?

    3. You re more concerned with getting a steady guaranteed return than risking a bigger payday through the stock market or other investment opportunities.

    As far as Suze Orman is concerned, it makes more sense to pay off your home before making investments anywhere else:

    You cannot live in a tax return. You cannot live in a stock certificate. You live in your home.

    People who have the best grip on their personal finances naturally abhor paying interest. Personally, I hate paying interest. To anybody. For anything. But that s just me.

    So Is Paying Off Your Mortgage Early A Good Idea?

    Well, that depends. In the end, the correct answer really comes down to which reasons are most important to you.

    Don t let anybody tell you otherwise.

    For additional perspectives on this topic from the Money Mavens, check out these articles:


    Should you pay off your mortgage early? Money Advice Service, pay off mortgage early.#Pay #off


    Should you pay off your mortgage early?

    With mortgage interest rates so low, some argue that there’s no point in paying off your mortgage early. Others argue that paying off debt is always a good idea in an uncertain economy. We weigh up the options, so you can decide.

    Early mortgage repayment – Questions to help you decide

    Should you save or pay off your mortgage early? Answer these questions to help you decide.

    1. Do you have any other more expensive debts?

    Expensive debts are those which cost a lot to pay off over time.

    Credit cards and store cards, for example, charge a high rate of interest over the course of a year.

    Other examples might include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

    Always pay off more expensive debts before thinking about reducing your mortgage – but don’t rack them up again.

    2. Are you putting money into a pension scheme?

    Top tip

    On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum will reduce the interest by £11,500 and the repayment term by 18 months.

    Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief.

    And, if you have a company scheme your employer might pay into the scheme too.

    If you don’t have a pension and have money to spare, it’s important to think about paying into one.

    The earlier you start, the sooner your retirement pot will start to grow.

    So think about this before deciding to use your savings to pay down your mortgage early.

    It’s also worth taking stock of any existing pensions you have to see if it’s worth paying more into them.

    3. Could your family cope financially if you died?

    Do you have dependants? The cost of putting in place life assurance is relatively low – if you’ve not got this already and have a family or other dependents then now’s the time to think about it.

    4. Can you get a savings rate higher than your mortgage interest rate?

    If you’re already contributing to a pension scheme, rather than pay off your mortgage it might make more sense to put your money into a savings account.

    That’s if you can find one which pays a higher rate of interest than the rate you’re being charged on your mortgage.

    To get an accurate comparison, work out what the rate amounts to, after you’ve paid tax on your savings.

    Some savings accounts – such as ISAs or some National Savings Investments accounts offer tax-free returns you can benefit from.

    Other things to consider if you want to pay off your mortgage early

    Keep some money in reserve

    Ensure you have saved enough money to keep you going for at least three months before paying off your mortgage early.

    Will you be charged for overpaying your mortgage?

    Check your mortgage deal to get an accurate picture of how charges can cut into any savings, which result from overpaying your mortgage.

    You could be charged for paying your mortgage off early or making a monthly payment, which goes over your agreed monthly limit.

    Many lenders will let you overpay up to 10% a year without penalties.

    Do you have a flexible or offset mortgage?

    Flexible mortgages – including offset mortgages – allow you to overpay your mortgage and then draw back the money if you need it – all without charge.

    The benefits of overpaying your mortgage

    If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner – sometimes even years earlier.

    On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,500 and means you repay 18 months earlier.

    Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on.

    If you decide to overpay your mortgage

    If, after weighing up all the facts, you decide to overpay, then you need to time it right.

    If your mortgage interest is charged daily, then the sooner you make the overpayment the better.

    If it’s charged annually, then you need to time your overpayment so that it counts towards the calculation of the interest for the year.

    Did you find this guide helpful?

    Care to share?

    • Share this article on Facebook

    Share this article on Facebook

  • Share this article on Twitter

    Share this article on Twitter

  • Share this article by Email

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  • Should you pay off your mortgage early? Maybe not, pay off mortgage early.#Pay #off #mortgage


    Should you pay off your mortgage early? Maybe not

    If you’re able to pay off your mortgage early, should you do it?

    It seems like a simple decision, but there are actually many sides to the story. CNBC asked several advisors to weigh in, and they came up with a number of pros and cons.

    When it s wise to pay it off

    “I recently talked my own mother into paying cash for a new home, as she is entering retirement,” said Elizabeth Grahsl, certified financial planner and vice president at Prosperity Bank. “The downsides are that she has to recognize a fair amount of capital gains to sell enough assets to pay for the home outright … [and] she’ll lose the mortgage-interest tax deduction.”

    But the downsides are nothing compared to the interest and closing costs she’ll save, said Grahsl, compared to even a 15-year mortgage.

    Pay off mortgage early

    “And because her retirement expenses will be so much lower without a mortgage, she won’t need to withdraw as much from her portfolio for income,” she added. “That will save her income taxes and capital gains over the coming decades, as well as enable her to retire with a lower portfolio value.”

    Grahsl generally recommends that people near or in retirement pay down their mortgages rather than invest more in stocks or bonds. While mortgage interest rates are low, she said, the market is near all-time highs, and both stocks and bonds seem overvalued.

    “Over three-plus decades, I do think the market will outperform today’s mortgage rates,” she said. “But retirees don’t need to take that gamble.”

    Russ Weiss, a CFP with Marshall Financial Group, offers both pros and cons. The pros include:

    • Peace of mind. “A lot of what I do is managing behavior vs. managing investments,” he said. “If paying off a mortgage means the client is less likely to panic with their portfolio value down, I am inclined to recommend it.”
    • Good savings vehicle. “Some clients are not good savers,” Weiss said. “By paying off the mortgage, it creates a form of forced savings.”
    • Taking more risk in the overall portfolio. “By paying off the mortgage, it allows us to revisit the investment portfolio structure and allocate more money to stocks.”

    When it s wise not to pay it off

    Weiss also lists several reasons for not retiring a mortgage early, including:

    • Leverage. “By borrowing for long periods of time at low rates and investing the difference, the client will most likely end up with more wealth versus paying off the mortgage.”
    • Right-sizing debt. “People typically buy too much house and therefore take out too much of a mortgage,” he said. “If paying off the mortgage is a concern, they should consider the possibility they purchased too much house. The right amount of debt is favorable to long-term wealth growth, assuming a low-interest-rate environment.”
    • Inflation hedge. “Paying off the mortgage does not help to provide income,” Weiss said. “Plus, the bank takes all the risk. Over a 30-year history, assuming the borrower makes all the monthly payments, the bank can never call the loan. This provides for a fixed payment for 30 years that will never change. Taking inflation into account, it’s possible that 20 years into the mortgage, the payment will be equivalent to an electric bill or similar.”

    There could be individual retirement account-related advantages to not paying the mortgage off, said Julie A. Schatz, CFP and partner with Investor’s Capital Management.

    “If the client is retired and their adjusted gross income is relatively low,” she said, “then having a mortgage interest deduction [along with property tax, maybe charitable contributions, etc.] on their Schedule A will reduce their taxable income even further and allow more room for tax-efficient Roth conversions.”

    Don’t retire the mortgage early if you’re not staying put, said Kristi C. Sullivan, CFP and owner of Sullivan Financial Planning.

    “If a client thinks they will be in a house for 10 years after the mortgage payoff, I encourage them to do it,” she said. “But if they want to move soon after they are able to pay off the mortgage, I don’t.”

    “It’s great to save the interest, but not at the expense of liquidity if this is not your forever house,” Sullivan said. “Why pay $20,000 in interest to get $6,600 back from the IRS?”

    For his part, David Mendels, a CFP and director of planning at Creative Financial Concepts, said that “far too many clients focus on paying off their mortgage in retirement, only to end up ‘land poor.'”

    “Especially at today’s low rates,” he added. “I urge them to think less in terms of the added payment than of the added safety net of the extra cash.”

    The only exception to this rule is if the money is going to “burn a hole in their pockets,” Mendels said.


    Pay Off Mortgage Early: 4 Ways To Do It, pay off mortgage early.#Pay #off #mortgage


    4 ways to pay off your mortgage early

    If you can afford it, it might be simple to pay off your mortgage earlier. But should you? That’s a complicated question.

    Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.

    Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.

    If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.

    1. Refinance with a shorter-term mortgage

    You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

    Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

    Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.

    Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

    And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.

    Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.

    2. Pay a little more each month

    Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.

    Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.

    Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.

    Let them know you want to pay “more aggressively” and ask the best ways to do that.

    Some servicers may require a note with the extra money or directions on the notation line of the check.

    In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.

    3. Make an extra mortgage payment every year

    Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.

    Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

    4. Throw ‘found’ money at the mortgage

    Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.

    Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.

    The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.

    The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.


    6 Steps To Pay Off Your Mortgage Early #mortgage #broker #fees


    #pay off mortgage early

    #

    6 Steps To Pay Off Your Mortgage Early

    Should you pay off your mortgage early?

    It s a question personal finance experts have been debating for years. Some say it makes financial sense to invest that money in the stock market, while others say you won t ever regret being 100% debt free.

    In 2010, I set a personal goal to pay off my mortgage by March 2015, my 30th birthday. Following the steps below, I reached my goal several years ahead of schedule. I got rid of my $86,000 mortgage just 2 years after buying a one-bedroom condo in Atlanta, Georgia.

    Here are the 6 steps I followed to pay off my mortgage faster

    Step 1: I BOUGHT A HOME I COULD AFFORD

    If you want to finance a home, you ll need to get prequalified first. The bank will look at your overall financial picture and spit out an amount that you re likely to get a loan for. Some people use this number to set a housing budget, but not me. The bank is just guessing. I examined my monthly budget and determined what I wanted to spend on housing. It ended up being much less than what the bank told me I could afford.

    Step 2: I GOT A 15-YEAR MORTGAGE

    I decided to calculate the difference between a 15-year mortgage and a 30-year one. Of course, a 15-year mortgage will always cost you more per month. The advantage is that you ll save on interest charges because the term is shorter and the interest rate is lower. In my case, the interest rate for the 15-year loan was 0.75% lower than the 30-year mortgage.

    Step 3: I SET A TARGET PAYOFF DATE

    Shortly after moving into my new condo, I used an online mortgage payoff calculator to set a payoff goal that would be both challenging and attainable. I posted reminders of my goal around the condo and let my close family and friends know about it so they could help hold me accountable.

    Step 4: I STARTED AUTOMATIC BIWEEKLY PAYMENTS

    In order to speed up my mortgage payoff, I started automatic biweekly payments through my loan provider. I paid half of the monthly mortgage payment every 2 weeks. That s basically the same as 13 monthly payments a year. My bank got the ball rolling on this for free, but some loan providers charge a fee. Give yours a call to talk over your options. (If you are being charged a fee, you can easily set up your own accelerated mortgage plan at no cost. )

    Step 5: I REDUCED EXPENSES AND INCREASED EARNINGS

    I reviewed my budget from top to bottom to find ways to reduce expenses and increase my earnings. This is how I learned to sweat the small stuff because all of those credit and debit card purchases really add up!

    Here are a few ways I saved:

    • Cut cable service Saved $600/year
    • Switched car insurance providers Saved $480/year
    • Packed my lunch Saved $1,000/year
    • Made coffee at home – Saved $500/year
    • Stopped buying new clothes Saved $1,200/year

    I also volunteered for extra shifts at the office, waited tables part-time, and picked up pet sitting gigs on Craigslist to make more money. I used all of my extra income, including tax refunds and work bonuses, to prepay the mortgage.

    Step 6: I REWARDED MY SUCCESS

    I never felt deprived throughout the mortgage payoff process because I rewarded myself along the way. For every $5,000 I knocked off my mortgage, I allowed myself $100 to spend on whatever I wanted. Sometimes I didn t even use that money because I was so focused on reaching my goal. When I sent my final mortgage payment to the bank in December 2012, I booked a vacation to celebrate my freedom from debt.

    FINAL THOUGHT

    Whether you plan to pay off your mortgage early or not, some of these steps can be applied to other types of debt. It all boils down to hard work. As a middle-class professional, paying off my $86,000 mortgage in 2 years was not easy. It required discipline, organization and most importantly, the right attitude.


    How to Pay Off Your Mortgage Early – Real Simple #estimate #house #payment


    #pay off mortgage early

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    How to Pay Off Your Mortgage Early

    Photo by Mikey Burton

    If you’re in the market for, say, a four-bedroom Colonial just about anywhere in America, you’re in luck. Home buyers haven’t had it this good in years: Sales prices have plummeted as much as 50 percent since 2006, and interest rates are at historic lows (at press time, about 3.5 percent for 30-year fixed loans). As a result, many people can buy a home today without taking on a mountain of debt.

    Experts agree that it pays to reduce debt in all areas of your life—and, in an ideal world, to eliminate it completely. So if you’re financially secure (meaning you’re free of high-interest credit-card debt, you’re investing in your retirement, and you have an emergency savings account that will cover 6 to 12 months’ worth of vital living expenses), paying off your mortgage makes sense—yes, even though interest payments are tax-deductible. Meeting this criterion and eliminating your debt completely may be unrealistic for you, but reducing your debt isn’t. Here’s how to get it done.

    5 Smart Strategies to Reduce or Eliminate Your Debt

    1. Refinance to a lower interest rate. Despite rock-bottom rates, millions of creditworthy Americans have not yet refinanced. And that’s a shame: Borrowers who refinanced during the second quarter of 2012 lowered their rate by an average of 1.5 percent. For a $200,000 home loan, that translates to savings of about $2,900 in interest payments over the next 12 months, according to Freddie Mac. (To calculate how much you could save, use the refinance calculator at Money.CNN.com. which, like Real Simple. is owned by Time Inc.)

    If you plan on staying in your home for at least three more years and your mortgage is at least $100,000, with an interest rate of 4.75 percent or higher, ask your current loan servicer or lender for its best refinancing rate. Then compare that with rates at banks that you already have accounts with. Or you can opt to work with an independent mortgage broker to find the lowest rate, says Keith Gumbinger, the vice president of HSH.com. a mortgage-information site. If you can reduce your current interest rate by .75 to 1 percent, go ahead and refinance.

    To help the process go smoothly, gather the following paperwork: proof of income (two recent pay stubs), copies of asset information, your tax returns for the previous two years, and proof of investments and other income. Additionally, be prepared to offer explanations for any recent income irregularities, credit inquiries, or job gaps. “Lenders question these situations because they could be an indication that you can’t afford your current loan,” says Gumbinger.

    2. Refinance to shorten your loan’s time frame. It’s becoming increasingly popular for home owners—even those on tight budgets—to refinance their 30-year fixed-rate mortgages to 20- or even 15-year ones. Today’s low rates allow you to do this while keeping your monthly payment fairly close to the current amount, says Erin Lantz, the director of Zillow’s Mortgage Marketplace. a real estate–valuation website. Say you’ve been making payments on a 30-year, 6 percent fixed-rate mortgage of $200,000 for five years. If you refinance to a 15-year, 2.87 percent fixed-rate loan (typical at press time), for example, your payments will increase by less than $80 a month. Yet you would pay off the loan 10 years earlier, build equity faster, and save an astonishing $130,477 in interest.

    Sponsored Stories


    3 Easy Ways to Pay Off Your Mortgage Early #amortization #mortgage #calculator


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    3 Easy Ways to Pay Off Your Mortgage Early

    4 Minute Read

    More than 20 million Americans own their homes outright. Some bought their homes with cash while others whittled away at their mortgages year after year until they were gone.

    That leaves about two-thirds of the nation s homeowners with the goal of one day making that last mortgage payment. Since we re all about getting out of debt as quickly as possible, here are a few suggestions to get your home loan paid off quickly.

    An Extra Habit

    Each time you pay extra on your mortgage, more of each payment after that is applied to your principal balance. Here are some options for paying extra and examples of how extra payments will affect the average $220,000, 30-year mortgage with a 4% interest rate:

    Local experts you can trust.

    • Make an extra house payment each quarter, and you ll save $65,000 in interest and pay off your loan 11 years early.
    • Divide your payment by 12 and add that amount to each monthly payment, or pay half of your payment every two weeks, also known as bi-weekly payments. You ll make one extra payment each year, saving you $24,000 and shaving four years off your mortgage.
    • Round up your payments so you re paying at least a few extra dollars a month.
    • Increase your payment when you get a raise or bonus.

    Always check with your mortgage company before you make additional principal payments. Some companies will only accept extra payments at specific times or they may charge prepayment penalties. And always make sure the additional money is applied to the principal and not next month s payment.

    Refinance or Pretend You Did

    The only type of debt Dave won t yell at you about is a fixed rate 15-year mortgage with a payment that s no more than 25% of your take-home pay. You ll pay much more in interest on a 30-year mortgage and, besides, who wants to be in debt for 30 years?

    You can refinance a longer term mortgage into a 15-year loan. Or, if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it s a 15-year mortgage. The same goes for a 15-year mortgage. If you can swing it, why not increase your payments to pay it off in 10 years?

    Using the same stats above for the average mortgage with a 15-year term, you d need to bump up your monthly payment to about $2,200 to pay off your loan in 10 years. You ll save $25,000 in interest, but best of all, you ll be out of debt five years sooner and have $2,200 a month to invest for retirement, save for college, or give away!

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    Pitfalls of Paying Off Your Mortgage Early – ABC News #mortgage #rate #trends


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    Should You Pay Off Your Mortgage Early?

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    Paying off a home mortgage early is not always the best financial decision.

    Should you pay off your mortgage? As with so many financial issues, the answer is: It depends.

    A couple recently came to me for financial advice – after drastically changing their entire financial situation. They had attended a financial workshop where they became convinced that any debt is undesirable. So they paid off their mortgage early by cashing in their six-figure 401(k) accounts.

    Because they were under age 59 1/2, they had to pay a 10 percent penalty, along with ordinary income tax, on this large withdrawal. They came to me – too late – for a second opinion on this by then irreversible move; the damage had already been done.

    Whether to pay off your mortgage early is a difficult decision that should be based on various factors. Depending on your situation, some debt—especially mortgage debt–is probably not as bad as the alternatives. In this case, not paying off the mortgage would have meant keeping the couple’s 401(k) assets intact and growing in value through compounding interest, which is interest on principal and interest. Albert Einstein famously called compound interest “the most powerful force in the universe.”

    This couple gave up their nest egg and its compounding interest to pay off a low-interest mortgage. Sure, they own the house now, but if they hadn’t cashed in the 401(k) accounts, the home’s value would be appreciating at the same rate regardless of whether it carried a mortgage. So they gained nothing in this respect, except for relieving themselves of the emotional burden that this relatively benign debt represented to them.

    After digging deeper, I learned that they had real stress all right, but this stress stemmed not from having a low-interest mortgage, but from not having an overall financial plan. Paying off the mortgage gave them the emotional high of checking one thing off the list. However, they now have to sacrifice more to save money every month to fund their retirement.

    If the couple’s 401(k)s had been left intact to grow, it may more than double in value by retirement. The couple argued that not having the mortgage payment would free up money to save monthly. However, calculations show that they will likely have much less when they retire because they have given up the magic of compounding interest.

    What’s more, if they lose their jobs, they might have to sell the house, possibly for a low price if they’re in a big hurry or the local real estate market is soft. Then, what’s left of their home’s value after real estate commissions and moving costs would go to pay living expenses – including apartment rent.

    This tale serves as an extreme example of the principle that, while it’s better to be free of debt, it’s critical to take your financial circumstances into account.

    Let’s say you’re in much better financial shape than this couple and you’re considering paying off your mortgage just to be done with it. Unlike them, you won’t have to touch your 401(k) to hold a mortgage-contract burning party.

    Whether you should take this step – or even go part of the way by making multiple monthly mortgage payments — depends on your circumstances regarding these factors:

    • Your total financial picture. Have you fully funded your retirement, including uncovered health care costs?

    • The amount of the mortgage payment. Is it so high that it’s burdensome?

    • Other investments you may have. Depending on your cash flow, your financial plan and your ability to put money into it, paying off your mortgage may carry high opportunity costs –investment returns you’d have to forgo that might be higher than the interest rate on your mortgage.

    • Your cash reserves. You should have enough cash to pay living expenses for six months squirreled away in the event of emergency – such as losing your job. If you don’t have this, you shouldn’t be thinking about paying off your mortgage.

    • The interest rate on your mortgage loan. If this is a low rate – as most mortgages are currently after years of historically low rates – then you may not gain much by paying off your mortgage. While you’re at it, you should evaluate this rate against the current lending market to see how much better you might do by refinancing your mortgage. Would this move produce a lower rate? If so, you might be able to lower your payment and invest more for retirement. This option might have helped the before mentioned couple.

    • Property taxes on your home. Often, these taxes are included in the mortgage payments. (If not, you’re probably acutely aware of this figure). If so, you want to determine this figure and account for it as a cost in your post-mortgage financial life. This figure tends to suppress the giddiness some feel when paying off their mortgage.

    • Where you stand in the life of the loan. The more principal that’s outstanding, the more interest you’re paying. But the interest can usually be deducted for federal tax purposes. Have a look at your most recent tax return to estimate how much you’re saving from this deduction. Again, this might make mortgage payments less painful and the thrill of outright ownership less alluring.

    These factors represent the practical side of the decision of whether to pay off your mortgage. And while you should pay close attention to them, it’s not imprudent to consider the impractical side of things – the satisfaction that paying it off might bring – assuming you’re in good shape regarding the points above and that the payoff doesn’t effectively cost you too much.

    I once had a client nearing retirement with a $30,000 certificate of deposit maturing and $28,000 left on his mortgage. His retirement was fully funded, he had good cash reserves and had he always lived well within his means.

    He came to me before making the decision and all but dared me to show him why it didn’t make sense to pay off his mortgage. I could see that the psychological value of owning his home entirely was worth a lot to him. Since he had met all of his financial goals, I told him that, if it would give him satisfaction, then by all means go ahead and pay the darned thing off. Now he proudly displays his deed, framed and hanging on the wall.

    This column is the opinion of the author and in no way reflects the opinion of ABC News.


    What Is a Charge Off of a Second Mortgage After Foreclosure? #mortgage #service #center


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    What Is a Charge Off of a Second Mortgage After Foreclosure?

    Question

    My home was foreclosed on about a year ago. I stopped making payments on the second mortgage around the same time and I just got a notice that the loan was “charged off.” What does this mean? Is the debt forgiven? What should I do, if anything?

    Answer

    Your second-mortgage debt has not been canceled or forgiven. A “charge off” is an accounting term that means the creditor no longer considers the money you owe as a source of profit, but rather, counts it as a loss. A charged-off loan (unlike forgiven debt) is still considered an obligation that you must pay.

    Understanding Charged-Off Second Mortgages

    When the first-mortgage lender foreclosed on your home, the second mortgage was also foreclosed and that lender lost its security interest in the real estate. (Learn more in Nolo’s article What Happens to Liens and Second Mortgages in Foreclosure? ) While the second-mortgage lien was eliminated, the debt associated with the second mortgage was not. Instead, it became unsecured debt.

    Then, after you stopped making payments on your second mortgage, your second mortgage lender eventually determined that the debt was uncollectible and decided to charge it off. (This usually occurs between 180 and 240 days from the date of your last payment.) This means that the lender is writing the debt off their books, but it does not mean that it forfeits the right to collect the debt. Even though the lender did a charge off, the debt remains legally valid.

    What Happens After a Charge Off?

    After the charge off, the creditor will typically place the account into collection. The creditor will either act as its own collector or it will assign (or sell) the debt to a third-party collection agency. No matter which of these entities is acting as the debt collector, it will probably make repeated calls and send letters to you to in an attempt to collect the debt.

    Your Options After a Charge Off

    There are a few different routes you can take after the lender charges off a second-mortgage and sends it to collection. Your options include:

    Make the Required Monthly Payments or Pay the Debt in Full

    You will have to make payments on the debt or pay it off in full; otherwise, the collection agency can sue you personally to recover the money (so long as the statute of limitations has not run out). (Learn more in Nolo’s Statute of Limitations Debt Collection area).

    Don’t Pay and Let the Collection Agency Sue You

    This is generally not recommended. If the collection agency wins the lawsuit and gets a money judgment against you, it may collect this amount by doing such things as garnishing your wages or levying your bank account. (Learn about methods that creditors can use to collect judgments .) Also, your credit will be further damaged. Of course, if you have nothing that the collection agency can get from you, and this financial situation will last for a long time, then it might make sense to do nothing. (See What Does Judgment Proof Mean? )

    File for Bankruptcy

    Filing for bankruptcy is an option as well since a bankruptcy can reduce or eliminate this type of debt. (For more articles on bankruptcy, including bankruptcy basics, bankruptcy procedures, and specific information about filing bankruptcy in your state, visit our Bankruptcy topic area.)

    Settle the Debt

    If you can’t afford the required monthly payments or come up with enough to pay off the total amount of the debt, you can negotiate a settlement for an amount less (often much less) than what you actually owe. Some creditors will accept as little as 10%-20% of the remaining balance to settle the debt. (To learn more about settling a debt, visit Nolo’s Debt Settlement Negotiating With Creditors area.)