Don’t Drown in a “Bad Mortgage”

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A bad mortgage is sort of like a bad marriage. You feel stuck and frustrated. Fortunately, there is a reasonably painless way out of a bad mortgage. Refinance your loan. Refinancing might require some paperwork, like check stubs and bank statements, but it can save you thousands, maybe even hundreds of thousands of dollars over your lifetime. These are some ways to recognize a bad mortgage.

Too Long of a Term

 

During the Great Recession, many people were able to get a loan modification under special federal programs to help them keep their homes. Most of those loan modifications programs were for 40-50 year terms. The economy has stabilized now, and there’s no reason to have such a long term mortgage. That extra 10 or 20 years will cost you hundreds of thousands of dollars. Maybe your home loan was for thirty years, cutting it down to 15 will also help substantially.

High-Interest Rate

 

Interest rates are dropping, and a 1 percent difference in interest can be huge over the life of a loan! Here is an example. One percent on a $160,000 mortgage will increase your monthly payment by only about $100, but that higher rate means you’ll pay about $30,000 more in interest over the next 30 years. You could buy a new car for that! There are lots of free mortgage calculator apps where you can try different scenarios for yourself to see the difference.

Adjustable Interest Rate

 

Adjustable Rate Mortgages (ARMs) are sometimes popular because you get a low-interest rate in the beginning. However, over time, that rate begins to creep up, and ten years from now, you might find your payment is several hundred dollars more each month. That higher interest rate doesn’t only cost you in terms of your monthly payment, but it will cost you thousands of dollars of interest over the life of the loan.

Getting Rid of PMI

 

Private mortgage insurance is an insurance that mortgage providers use to decrease their risk of loss on a mortgage with a low down payment. Lenders generally require it on any mortgage that is for more than 80% of the value of a house. Here is an example, if a buyer were to put only 5% down on a home, the lender would require an amount of PMI that reduces the mortgage to less than 80% of the home’s market value. Most people try to circumvent paying PMI because it can be costly. For example, on a $190,000 home loan with a 3.9% APR and a home value of around $200,000, a borrower with a fairly decent credit score would pay about $138 per month more in PMI.

When was the last time you took a good look at your mortgage? Do you even know your interest rate or how many years you have left on your loan? Are you paying PMI? Perhaps it’s time to sit down with your favorite mortgage professional at Primary Residential Mortgage to review your current loan and start the process for a refinance. Give us a call today.

Note: Opinions expressed are solely my own and do not express the views of my employer