Do you check up on your insurance every year? Maybe you shop around for better cable or utility rates too. You should be doing the same for your mortgage. As your needs and abilities change, your mortgage needs may change too. We recommend that you review your mortgage once a year. This gives you a chance to make sure you are on track with your goals and to see if you can take on a better mortgage in terms of either the rate or the term.
Why should you review your mortgage? Read the reasons below.
Your Home Value Changes
Generally, home values increase. Now we have all seen the detrimental effects of what a declining economy can do, but usually you’ll see some type of increase. If your home value does increase, it may open up more opportunities for you. Are you paying PMI? You may be able to cancel it. Are you paying a high interest rate because you had a high LTV? You may be able to lower it now by refinancing. Checking up on your mortgage once a year will let you know where you stand and if you can save any money on your mortgage because of your home’s appreciation.
You Want to Make Changes to Your Home
Have you always wanted to change the flooring in your home, finish the basement, or put on an addition? If you don’t have the cash lying around in a liquid investment, you may be able to tap into your home’s equity. Reviewing your mortgage will also give you the opportunity to review your home’s value. Do you have enough equity to take it out and invest it right back into the home? This can be one of the best uses of your home’s equity, other than letting it sit and accumulate.
Your Credit May Change
Did you take out your mortgage when your credit was less than perfect? Maybe it was your first home and you had minimal credit to offer a lender. After you have your mortgage for several years, you have the opportunity to improve your credit score. If it’s improved enough, you may be able to qualify for better terms now.
What if you could refinance and get a lower interest rate? You’d be able to save money every month as well as over the life of the loan. Even just a 0.5% decreased rate can save you thousands of dollars over the life of the loan. If you know you’ll stay in the home for a long time, it may be worth exploring.
Your Debts Increase
Sometimes things change for the worse. Maybe you took on more debts, such as college loans for your child or you had some emergencies that put you in over your head in credit card debt. If this is the case, your mortgage payment may be too hard to afford when combined with the other debts.
If you have the equity in your home, you may be able to consolidate your debts into one payment. While you will be using your home’s equity, you could be saving yourself money in the long haul. Paying less interest on debts like student loans and credit cards can save you money. Just keep in mind that if you stretch out the term to the max (30 years), you may end up paying more in the end because of the time you get to pay off the loan. You pay interest on every dollar that is outstanding, which means paying interest for 30 years.
You Can Pay More Towards the Debt
Sometimes reviewing your mortgage means just seeing how you can put yourself in a better financial position. Maybe you can pay more towards your mortgage every month. This doesn’t mean you have to refinance. If you are happy with your interest rate, you can leave the loan alone. But, you can pay more towards the principal each month or on a lump sum basis. This immediately decreases the amount of principal you owe, which decreases the amount of interest you’ll pay in the end. If you pay enough, you could knock several years off the term of your loan.
Every homeowner should take a look at where they stand with their mortgage annually. Even if you don’t make any changes, you’ll know where you stand. You’ll also know if you need to make any changes in the future, such as improving your credit or paying more towards your principal so that you can get out of debt faster.