One of our goals before we retire is have the mortgage paid off. We originally got a 30 year fixed rate loan a few years ago when the townhouse was built.
When we started our regular monthly payments we sent in an extra payment towards the principal. The goal had been to get our home equity built up as quickly as possible. I thought it would be nice to do a quick review to see how far we came in the last 3 years.
Housing prices are fairly steady now after the drop from last year. For now I’m calculating equity based on the purchase price (which is fairly close to its recent sales in the neighborhood) minus the current balance.
For those tracking all of the numbers, it comes out to:
- Original Mortgage: $123,239
- Current Balance: $102,683
That means right now our equity is about $20,556. Not bad, but we’re hoping to get this lowered so we can have 20% equity and hopefully get that mortgage insurance premium knocked off.
Saving Money and Time By Paying The Mortgage Off Early
Paying extra has also given us a few other benefits, including saving tens of thousands of dollars in interest saved with the accelerated schedule. Following the mortgage amoritization schedule, most of the money goes towards paying interest in the beginning of your loan.
As the mortgages draw to a close, the payments increasingly goes towards the principle owed. Extra payments gets us past the earlier portion of the mortgage and more of that money is applied to the principal.
Paying down the mortgage quickly is also about our own peace of mind. We also don’t want to limit our cash flow for the full 30 years by carrying our mortgage the full length.
Building Home Equity
How are you doing with your home equity? What kind of mortgage did you get and why? How much equity to you have right now? Do you plan on paying off your mortgage early?
Photo Credit: woodleywonderworks
A few years ago my in laws got a great deal on a house because it was a short sale.
Short sales are what they sound like – home are sold for less than what the mortgage is for the property. Why would lenders agree to such a proposition? The motivation for lenders to go with this arrangement is to avoid a foreclosure which can be more expensive and longer to process.
The pros of doing a short sale for the current owners is that they get out from a heavy mortgage loan
, with the exception of the balance. If they moved out of state due to a job offer, then this allows them to get away from having to shoulder two housing payments. With a smaller balance to deal with, borrowers can make the payments a little bit easier than previously.
On the other hand, the sellers are still on the hook for the reminder of the mortgage balance. If the balance is rather large and their income is still fixed, a short sale will only give them a small amount of relief.
Short Sale Process – The Basics
For those curious about how a short sale works, here’s a very basic summary of the process.
- Determine the value of property. Here’s where the lender sees if it’s better for them financially to proceed with a short sale at all or look at foreclosure.
- Get a short sale application. Lenders have to give the go ahead on this before borrowers can try and sell the house.
- Borrowers have to submit a hardship letter to their lender. They have to present a case of why having a short sale is the best move in this scenario. Including numbers and any relevant data make the case stronger, borrowers increase their chances of having a short sale.
- Borrowers have to find a buyer for their home. It’s a detailed process and for some, it involves a lot of back and forth negotiations.
- If accepted, then closing on the property occurs.
Of course the details will vary house to house, but if you’e thinking about buying for selling, it helps to have an overview.
Thoughts on Short Sales
I’d love to get your thoughts on short sales – both the pros and cons of it for buyers and sellers. While the process was a bit of a headache, it was worth it in the end for them. They have a home they love at a price that works for their budget.
Photo Credit: love♡janine
Happy to report a good change with Operation Refinance. My friend was able to spend some time calling and emailing lenders to find a deal that works. Getting some great responses from current and possible lenders, we decided to see which were the best offers.
No Cost Mortgage Refinancing – Not Free
One of the offers was a no cost refinance – well, it’s not really no cost. The catch was a slightly higher interest rate (.25-.35%) and the closing costs would be paid by the mortgage lender.
Another offer was a lower interest rate and paying half of the closing costs. As they are on a tight budget, they are leaning towards going ahead and taking the no out of pocket option.
Refinancing Offers Short Term and Long Term Benefits
Looking at the numbers, my friend comes out ahead with the refinancing. Not only can they lower their monthly payments, but they can also knock off time from their mortgage loan as they would be going with a 20 year fixed rate mortgage. They didn’t want to restart with a 30 year mortgage.
Getting a refinance that they can also save money over the life of the loan with interest payments. That’s because most of the money goes towards paying interest in the beginning of a mortgage. As the loan draws to a close, the payments increasingly goes towards the principle owed.
That means that the money saved can be used for other financial goals, including bumping up retirement contributions, paying off debt, or saving for the next car.
Thoughts on Refinancing
It looks like my friend will get back with me when they decide which offer to take. I wish them the best with the refinance.
I’d love to hear from those who have gotten a refinance recently. Were you offered a no cost refinance option? did you take it – why or why not? How was the process for you?
Photo Credit: sushi♥ina
Operation Refinance has hit a snag. Last week I was checking with a friend to see if they’ve made any progress with refinance. Unfortunately life got in the way and they haven’t called one of the mortgage specialists to get a quote. However we’re back on track again and we’re moving forward.
FHA Mortgages and Streamline Refinancing
While getting information on possible refinance options for them, I found out about streamlining FHA mortgages. My lender had information on their site and I decided to dig a bit further on HUD to find out more.
It’s available to homeowners who:
- currently have existing FHA mortgages made before June 2009
- have a mortgage that is current with payments
- can lower their principal/interest payments with the refinance
- are NOT getting a cash out refinance
If you meet these requirement, it may be very financially rewarding for you to contact your current lender to see if they offer this refinance option.
Benefits of a Streamline Refinance
If you do qualify for a streamline, there are numerous benefits for you, including:
- Less documentation required for the refinance
- No appraisal needed
- Lower mortgage insurance premiums
The lower mortgage insurance premiums can give some significant savings as FHA has reduced the upfront premium to 0.01% of the total loan and the annual premium to 0.55% of the mortgage.
Lenders can also vary with certain aspects of the refinance – some have no cost loans. That typically means that means that the borrower get a slightly higher interest rate than if they paid closing costs with the refinance.
Before you sign up for a streamline refinance, please check with the lender to make sure you understand all the details of the process.
Thoughts on FHA Streamline Refinancing
How about you – have you tried getting a streamline refinance for your mortgage? How many of you are think about refinancing in the near future?