Refinancing a Mortgage
You know how it feels when you get that dreaded monthly mortgage payment. Its always high, the interest rates are high, the payments are high, and the time just seems to go on. When you look at it like that its hard to keep your cool and make the payment. But its important to stay calm and keep your monthly mortgage payment in your head. Here is what usually makes up a monthly mortgage payment:
Principal: This is the money directly deposited into your account. This is normally your first mortgage payment. The lender will use this money to pay your property taxes. How much you will pay is specified by your lender.
Home buyer’s tax: This is the tax on the amount you paid for your home. Lender’s include this in the principal amount they charge you. This is the most important part of your monthly mortgage payment. A good home price estimate can go a long way toward calculating your homeowner’s tax obligation.
Mortgage Insurance: This is what you borrow from the lender each month. This is the amount the lender deducts for your mortgage payments. Mortgage insurance premiums vary depending on your location and the value of your home. If your home has a low market value, your lender will require you to pay higher mortgage insurance premiums. You can save money in these circumstances by getting online quotes for your mortgage payments.
Amortization Schedule: This is the schedule of payments to your lender sets every month. The longer term you take out your mortgage, the longer amortization schedule you will have. When setting up your monthly mortgage payment schedule, consider how much you can afford to pay out each month and how long you plan on living in your home. Also consider the amount of time left on your amortization schedule, as well as the interest rate your lender will charge you on your loan.
Private Mortgage Insurance: This is an insurance policy that protects your lender in case you default on your loan. You can opt for either a floating amortization schedule or a fixed-rate mortgage. If you opt for a floating amortization schedule, your monthly mortgage payment will go toward paying off your loan. If you choose a fixed-rate mortgage, your payment will be set for the life of your loan.
Check your mortgage agreement: Your lender may have a standard interest rate or an option rate listed. These interest rates can change over time. Be sure to read your mortgage documents closely to see if the interest rates listed are accurate. Also be sure to request an amortization table from your lender. An amortization table shows your payment amount compared to a preset interest rate for different time frames. It helps you budget for future costs.
Property taxes: You may also want to consider property taxes when calculating your monthly mortgage payment. Many counties in Ohio, especially Cleveland and Toledo, levy property taxes at the property tax rate. Check with your county government to find out what their property tax rate is. Many times people in these areas will receive refunds when they file their taxes. A tax refund calculator can help you determine if this is the case for you or not.
Principal balance loan repayment: If you owe more on your principal balance loan than your home purchase price, the interest will be added to the principal balance. Over time, the interest will add up to more money than your principle balance. If you are able to repay your mortgage early, you can benefit from early repayment charges. However, remember that you are making larger monthly payments to the lender and they may add these fees to the loan amount.
Check with your lender: Always ask your lender about any applicable fees and any adjustments to your mortgage due to changes in the interest rates or the principal balance. Ask your lender if there is a prepayment penalty or fee when you refinance. Know before you agree to a mortgage that there can be penalties for prepayment. You don’t want to get into a situation later where you decide to refinance again and your lender doesn’t allow you to.
Closing costs: Sometimes there are closing costs associated with refinancing your mortgage. Some of these costs are paid by the lender, but others are your responsibility. Your mortgage company will include their fee when you apply for your home loan and will include their fee when you close your new mortgage. Some fees that you will need to be aware of include the appraiser’s fee, title service fee, recording fee, and legal fees. If you decide to buy a second home, there is usually an additional fee associated with refinancing your first mortgage. This is something that you’ll need to discuss with your real estate agent or lender.