How Does A Change In Mortgage Rates Impact A Family’s Housing Budget?

How Does A Change In Mortgage Rates Impact A Family's Housing Budget?

The housing market is extremely competitive right now because mortgage rates are still near record lows. While mortgage rates are rising this year, the rates are still attractive to many individuals and families who are looking to buy a home. At the same time, when mortgage rates change, families need to re-evaluate their budgets. A change in mortgage rates will impact the monthly mortgage payment, so families need to know what they can afford.

Furthermore, because the market is so competitive, sale prices are going up as well. As mortgage rates and home prices rise, families need to determine what their monthly budget is. Even a small increase in the mortgage rate can make a big difference.  

Families Must Do The Math To Figure Out Their Monthly Mortgage Payments

Families need to figure out what monthly mortgage payment they can afford before they make an offer on a home. The factors impacting the monthly mortgage payment are the loan amount, the interest rate, and the repayment period. Many homeowners take out a 30-year mortgage; however, borrowers might be able to adjust the term to meet their specific needs. A few important points to remember include:

  • If the number of years over which the loan is paid back goes down, the monthly payment will likely increase
  • If the interest rate on the loan goes up, the monthly payment will increase
  • If the loan amount goes up, the monthly payment will increase

Families can adjust all of these factors to find the right monthly payment for their budgets.

There Are Ways To Reduce The Interest Rate On A Loan

Finally, there are steps that families can take to reduce the interest rate on their loans. For example, families might be able to put more money down to qualify for a better interest rate. This could reduce the monthly payment, keeping the loan amount within the family’s budget. Or, families might be able to pay down other types of debt such as credit card debt or car loans. If families have a lower debt to income ratio, they might qualify for a better interest rate. This could help families afford a larger house without having to spend more money.

Reevaluate

4 Ways To Pay Off My Mortgage Faster

4 Ways To Pay Off My Mortgage FasterFor most people, the mortgage payment is the biggest monthly expense. Whether you’re facing retirement or still working, it would be nice to be free of this debt. Although you probably can’t pay it off in one lump sum, it is possible to pay off your mortgage sooner than expected.

Here are four strategies to try.

1. Make Bi-Weekly Payments

You could shave eight years off a 30-year mortgage simply by breaking down your monthly payments into two payments instead of one. You’ll pay the same amount each month while the interest paid over the length of the loan is reduced. 

2. Make Principal-Only Payments

If you look at your mortgage payment slip, you’ll notice that the majority of your monthly payment goes toward interest. Slash years off your mortgage by making occasional principal-only payments on top of your regular payments. Consult your lender to see how many of these are allowed per year. If they’re limited, maximize each opportunity by making as large a principal-only payment as you can manage.

3. Refinance When Rates Drop

If your mortgage originated when interest rates were high, refinance it now that rates are still historically lower. You may need to pay closing costs, but you’ll still end up dramatically lowering the amount of interest you are paying on your mortgage. While you’re at the refinancing game, consider getting into a shorter term length. This tactic will probably increase your monthly payment, but if you can afford it, it’s a good strategy for paying down your mortgage quicker.

4. Pay Extra Each Month

If you can afford it, pad your monthly payment with a little extra as often as possible. Just paying $50 or $100 extra will enable you to get rid of your mortgage a little faster. Find the extra money by cutting back on small niceties, such as subscriptions, take-out food and more. You won’t notice the lack of small conveniences, but you will certainly notice a shortened mortgage loan term.

When you work to pay off your mortgage faster, you essentially save thousands of dollars in interest over the life of the loan. Implement one or more of these ideas to become mortgage-free just a little bit sooner.

If you are interested in refinancing your home, be sure to contact your trusted home mortgage professional.

Down Payment Money Saving Mistakes

Down Payment Money Saving MistakesAre you saving up money for a down payment? Saving money to put down on a home is always a smart idea, but there are right ways and wrong ways to go about it. Understanding how to best save for a down payment will go a long way toward ensuring you’re ready when you finally find the house of your dreams.

Here are four down payment money saving mistakes to avoid.

1. Not Saving Enough

It’s very admirable to have a goal of saving exactly 20% for a down payment. However, this is a common mistake new home buyers make. First of all, consider loan programs that allow for a lower down payment. In addition, there are lots of other costs associated with buying a home that you must also plan and save for, including:

  • Closing costs
  • Title fees
  • Miscellaneous fees
  • Time off work

2. Not Keeping Track Of The Source Of The Money

Many lenders have strict rules about where the money comes from for a down payment. Pay careful attention to the source of your down payment money, and keep accurate records. You may be asked to present these financial records to prove the source of funds as part of the mortgage review process.

3. Borrowing The Money

In addition, many lenders may allow only a certain percentage of the down payment to come from a family member. They want to know that you have the resources to come up with the down payment yourself without relying on favors from family members. Don’t make the mistake of borrowing excessively for the down payment, even if it’s from a third party lender.

4. Not Keeping Money In Reserve

It’s essential to keep some money in your savings account that isn’t earmarked for the down payment. You’ll need to disclose how much you have in savings and it will factor in where you get approved or not. Lenders want to see a history of consistent saving. This shows that you’re a financially responsible person with cash reserves in the event of an emergency.

The sooner you can start saving money for a down payment, the better. As you save, keep these four down payment money saving mistakes in mind so you have the best possible chances for being financially ready to act when you do find the house you want to purchase.

Your trusted home mortgage professional is ready to help you identify the right financial options for your specific situation. As soon as you are considering a home purchase or a refinance, be sure to contact this essential real estate partner.