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New Home Mortgage Tips

Congratulations on becoming a homeowner!  Now that you have moved into your new house there are steps that you can take to ensure you are successful in paying your mortgage.  Owning a house shouldn’t cause any undue hardship or stress. Whether you have a 30-year loan, or even a bad credit mortgage, paying it off early is possible if you understand how payments are applied. Now that you are in the house, you want to be sure that you stay there, avoid foreclosure. By following some new home tips, you can actually lower the effective rate and terms, without the expense of a mortgage refinance. 

The first tip for new homeowners is to understand how the payments are applied to paying off the loan.  It may seem with interest rates so low, that the interest would be a small part of the payment, but the opposite is true.  Even though the loan has a simple interest rate, it is amortized over the life of the loan, with most of the interest being paid in the beginning.  During the first several years of paying your house, most of the payments go to interest, while a very small portion is actually going towards paying off the loan.   In the last five years, most of the payment is being applied to principle, and little is going towards the interest.   

The most prudent time to make extra payments is with the first payment moving forward, if possible.  Even if you pay a small amount more than your required payment, that entire amount will go towards paying off the principle, not the interest.  Over a course of a year or longer, those little extras add up in a big way and can possibly shave years off of the loan.   

Another tip is to make bi-monthly payments instead of one payment a month.  Mortgage payments are always paid in arrears.  When you make a payment, it is being applied to the principle and interest from the previous month.  This is why your first house payment isn’t due the day you move in.  By setting up bi-monthly payments, amount paid remains the same, but half of the house payment is paid 15 days early, before the first payment is due.  The second half of the payment is paid as normal on the first of the month.  This essentially shaves off time. You are cutting 15 off days of interest each month by structuring your payments this way. In your first year alone you can cut your interest by six months and over time, pay your mortgage several years early and never make a bigger payment than you are obligated to pay. 

Any homeowner can cut interest payments and shorten the term, without mortgage refinancing by following these tips.  The final tip is to set aside money for a rainy day, at least enough for one house payment.  Making payments on time is always beneficial.   

 

 

  10 Steps to Home Ownership:

Step 1: Are You Ready?

Step 2: Hire a Realtor

Step 3: Get Loan Pre-approval

Step 4: Search for Homes

Step 5: Choose a Home

Step 6: Obtain a mortgage

Step 7: Make an Offer

Step 8: Insure Your Home

Step 9: Close the Deal

Step 10: Avoid Foreclosure

 

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