How to Manage Your Mortgage Short Term and Long Term
The prospect of getting your first mortgage, or even a second or third, can be daunting in any economy. Also, when the economy sours, the idea of taking out a large loan is even riskier. How can you manage your finances to ensure that the mortgage is always going to get paid? What happens if you miss payments? Good mortgage management, both in the short term and the long term, is always the best policy.
The first hurdle to overcome, of course, is getting the mortgage, and making sure you do not get a bigger loan than you can afford. Do not be tempted to take a larger loan out if you are not sure you can make the repayments. It is always better to err on the side of caution and restrict yourself to a loan you know you can repay.
Managing your Mortgage in the Short Term
Keeping control of your mortgage from day to day pretty much means managing your finances and getting your monthly mortgage payments made on time. Your mortgage is a loan for which your home is collateral, and for this reason, missing too many payments can mean serious problems, including the possibility of foreclosure.
The key is making sure you do not get a bigger mortgage than you can afford, no matter how tempting it may seem. Also, making as big a down-payment as possible helps to keep your monthly repayments low.
If you have already secured your mortgage, the time for making down-payments and calculating how much you can afford is over, and it is time to settle into the less exciting business of managing monthly mortgage repayments.
Assuming your finances are good, this is a simple matter. You make repayments on time, the amount of principal you owe gradually decreases, and eventually your mortgage is repaid. But sometimes making repayments is not easy. Sometimes it is impossible, and then what do you do?
The first step is simply to call your lender, as soon as you know there is a problem, and preferably before you miss a payment. Most lenders are willing to extend mortgage forbearance for minor problems such as one missed payment. This means the lender allows you to skip the payment, providing you agree to pay it at an agreed-upon time in the future (usually the date of your next scheduled payment).
For more serious problems, such as a long-term or permanent drop in finances – your lender may still be willing to extend forbearance and help you work out a temporary solution, such as a short-term reduction in the amount you pay each month (to be made up at a later date).
You may also be eligible to make what is called a partial claim, where your lender works with HUD to help you obtain a loan that covers the repayments you missed. Providing you meet the eligibility criteria, this provides an interest-free loan that does not have to be paid back until you can afford to do so (however, a lien placed on your home until the loan is repaid).
Finally, do not forget that if your finances take a permanent turn for the worse, you’ve always got the option of refinancing. By lengthening the term of your mortgage, you can reduce the size of your monthly repayments to make them more manageable. The downside, of course, is that you’re paying more interest and adding another five or ten or more years onto your mortgage, so it’s something to consider carefully before making a decision.
When you find yourself in a position where a making mortgage payment becomes difficult, the most important thing to remember is that you must contact your lender immediately. Do not let one or two missed payments go by before making contact, do it right away, be honest about your problems, and your lender will be much more willing to help you work out a solution.
Long Term Mortgage Management
Managing your mortgage over the life of the loan is more about deciding whether to change the terms of your loan. You may, for example, decide to refinance your mortgage to reduce the terms of your loan, tap into some of the equity in your home, or take advantage of lower interest rates. You may even want to refinance to a mortgage with a longer term, perhaps to reduce the size of your mortgage repayments or simply because you would like to draw out some equity in the form of cash.
The question is, if you can do these things, should you? Most experts agree that it is better to pay off a loan as early as possible to reduce the amount of interest you pay, but at the same time, if you need money, the mortgage is often the best place to get it, especially if your mortgage interest rate is low compared to other loans you might be able to get.
About the Author:Jeremy Foster is a freelance writer who writes about topics and pertaining to the mortgage industry such as refinancing home mortgage.
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