Towards the end of each year I carve out time to look back on how the past year went. I think about what went well, and what I’ve accomplished. I also think about things that I will do differently for the coming year.
Part of this reflection includes reviewing my finances to see where I’m at. Working in the mortgage industry I see many different ways that clients handle their finances so it is inevitable that from time to time I compare my ways to things I learn from my clients.
For many of us purchasing real estate is the largest investment we will make and also the largest debt we will carry. Many times once we have gone through the process of purchasing a home we tend to set it and forget it – meaning that we make our regular payments and don’t do much with our mortgage until our five-year renewal pops up.
When we are starting out or have lots of expenses this might make the most sense. However, once our income increases or expenses go down it might make more sense to think about making extra payments to start carving our mortgage down.
As an example, I looked at a mortgage of $440,000. Assuming the same interest rate but increasing the payment from bi-weekly to bi-weekly accelerated, the payment was $67 higher per payment and shaves three years and four months off the life of the mortgage AND paid off almost $9,000 more off the principal over a five-year term.
Each lender has slightly different pre-payment terms so it is worth a look to see what your mortgage allows.
If you are thinking that you don’t have room in your budget to increase your payment, it may be worth doing a deep dive into your finances to track where your money is going. There may be simple tweaks you can make (or more difficult decisions) that will free up monthly cash flow.
If you have significant equity in your home you might want to consider a refinance to tidy things up and make more headway on your overall financial health. For some people this may not be the right move but if you are finding yourself overextended and not making any headway on consumer debt like credit cards or lines of credit it might make more sense to move these debts to a lower interest rate on your mortgage.
We have a great app that you can download to your phone that has a section that lets you compare how making small changes to your mortgage can impact that balance and amortization over the long run. Here is the link if you’d like to see how making changes might help you in the long run using the my My Mortgage App.
The start of the new year always feels like a great time for a thorough review of your finances. Particularly if your mortgage is coming up for renewal over the next few months it’s a great time to see if there are some small changes you can make to improve your overall financial health.
Wishing you and yours an amazing year to come.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.