How to manage a mortgage
Tuesday, August 31, 2010
Choosing a budget for your Chatham-Kent mortgage
Many homebuyers make the mistake of believing the amount of money the bank will loan you for a mortgage is the budget they should stick to when house hunting. Quite frankly, this strategy will lead to larger debt, more stress, and often, you losing your home.
What banks don't tell you is that your available mortgage is calculated based on the maximum amount you are able to pay them back. This doesn't include repairs to the home, your vehicles, food, taxes, insurance, and the other costs of living. The lesson in this? Do your homework before you start searching for a home, don't spend to the maximum amount you've been approved for, and budget, budget, budget.
How to manage a mortgage on your Chatham-Kent property
The first step in this process is purchasing a home that you can afford to pay for, and at the same time, pay for the everyday cost of living. If you buy the house and three months later your air conditioner, pool pump, and dishwasher die, you had better have money saved to cover these costs. After you find a home at a price point you can afford, here are a few rules for managing your mortgage that will keep you out of debt and help you own your home faster.
• Keep three months payments in the bank: This might sound extreme, but keeping three months worth of mortgage payments in your bank account is a safe practice. If someone in your family loses their job, you lose a large contract at work, or you have an unexpected expense, having this reserve fund will save headaches and heartache. If you are able to save more than the three months worth of payments, check out my next tip for managing your mortgage.
• Overpay when possible: When your budget permits, overpaying on your mortgage is the best investment you can make. Not only does it take time off the term of your mortgage, it can also save you hundreds, or even thousands of dollars. Most people would jump at an investment these days that is guaranteed to pay 5% or more. That is exactly what paying extra, either on each payment, or in lump sums each year, off the principle of your mortgage can equate to. You'll save your interest value off of each dollar you overpay. If you know you'll be able to overpay each month, consider my last tip.
• A shorter term equals a cheaper house: Making the term of your mortgage 10 or 15 years, compared to 25 or 30 years will save you tens of thousands of dollars. Banks make their money by accumulating interest over years. During a ten year term, you pay for example, 5% for each of those years. If you're paying for 30 years however, you'll pay the 5% for 20 extra years. You can also reduce the term of your mortgage by paying bi-weekly, compared to monthly.
Do your research before purchasing
Most of the stress associated with making your mortgage payments, making extra payments, staying within your means, and owning your own home in Chatham-Kent quickly, can be avoided by a little research. Almost every bank offers an online mortgage calculator with current rates. These calculators will show you your base payments, how much is paid toward principle per month, and how much interest you pay per month, and over the term of the mortgage.
If you still have questions, ask me. I'm always available to help Chatham-Kent homebuyers throughout the process, even if it is after you've bought or sold a home. Feel free to visit my Chatham-Kent Real Estate website http://www.chathamontario.com or give me a call at 519-360-0141.
