At the end of 2018, 4.3% or 2.2 million homes had negative equity. This is a significant improvement from 2008 when more than half of mortgaged homes experienced negative equity. So, what is negative equity, and how does it affect your mortgage? This is just one of many situations that you can face when you purchase a home with the assistance of a mortgage. This guide will show you how to deal with a mortgage.
1. Always Pay on Time
Carefully review the requirements outlined by the lender when it comes to payments. For example, some lenders will not accept payment if it isn’t in full. This means you cannot make partial payments and expect the lender to attribute them to your monthly payment. Additionally, review how the lender applies your payments to your mortgage. For example, if you make an extra payment, is it applied to the principal or to the interest? Making extra principal-only payments can help you pay down your mortgage faster. Finally, do not miss the monthly payment deadline. Doing this can wreak havoc on your credit score and result in additional interest owed.
2. Do Not Over Borrow
One of the most frequent mistakes people make is overborrowing or spending. They will collect every penny they have to make the home purchase. Then they will go out and borrow or purchase new appliances or home upgrades on credit. They become over-leveraged and in greater debt than what they planned for. This results in paying more than necessary for the appliances and at greater risk of defaulting on the loan or other debt.
3. Plan For a Rainy Day
Life is unpredictable, but you don’t want to default on your mortgage. This puts your home at risk. Set aside money in an emergency fund. That way, if an emergency happens, your mortgage payment is covered. You can also use your emergency fund for property repairs. You can’t predict when you’ll have a roof leak, a large appliance gives out, plumbing fix, or storm damage. An emergency fund ensures you can get your home fixed immediately and minimize the damage.
4. Expect Your Taxes and Insurance to Increase
The taxes and insurance charged each year will continue to increase. People tend to lose sight of this because the payments are wrapped up in your mortgage. The problem is, this results in your mortgage payments going up. If you can just barely afford your monthly payment now, then you won’t be able to afford them in the future when these fees increase. It’s not uncommon for an increase of 10-20%, which can add up to a lot of money by the end of your mortgage repayment.
5. Consider Making Extra Payments
One of the best ways to manage your mortgage is to pay it down quickly. The more payments you make, the less you owe, and the more equity you have in the home. If you aren’t required to make a full monthly payment, consider making a half payment every two weeks. This results in you making 13 months’ worth of payments in a single calendar year. That extra month each year adds up to significant savings in the long run. If you cannot do this, try setting aside a little every month so that you can make an extra month’s payment at the end of the year.
Now You Know How to Deal With a Mortgage
When you know how to deal with a mortgage, you can handle it like a pro. First, review the repayment terms to know what’s expected of you. This will also help you understand how to leverage your payments to repay the loan quickly and reduce the interest you pay. Finally, plan for your expenses to increase and for emergencies, so you aren’t caught short.
Schedule a consultation with our knowledgeable real estate attorneys to plan your next home purchase.
