Mortgage Wellness Part 1: Stop Paying Too Much!

One doesn’t hear it from mainstream media, but most people are still paying their mortgages on time, every time. Even if defaults rise to 25%, three-quarters of mortgagors will still be all right. With that in mind, you can fine tune your mortgage’s health. First, a basic principle. How you pay your mortgage is more important than what you pay (your interest rate). For example, if you have a conventional compounding loan (not a simple interest loan), you may be making your mortgage payment two weeks earlier than necessary. Most home loan payments are due the first of the month, but are not late until the 16th. Since the interest included in that month’s payment is for the prior month (paid in arrears), applying the payment on the first or the fifth isn’t going to affect the next month’s interest any more than paying it on the 15th will. If your payment is automatically deducted from your checking account, consider setting the date for the 12th. That way, in case Monday is a bank holiday, as occurs several times a year, your payment will still be processed before the 16th--the "late" day. The advantage to you is money stays in your account almost two weeks longer, possibly earning interest, but at the least increasing your average daily balance, which affects your credit worthiness. Simple interest loans, on the other hand, have interest computed daily. So the sooner you get that payment into the bank, the lower your interest will be next month, thus channeling more of your money toward principal--the equity you’re building in your home. If you aren't sure which type of loan you have, a quick call to your lender will clarify not only the type, but the date by which a so-called late payment is considered delinquent. Know the bank's rules so you can not only play by them, but just as with filing your taxes, take advantage of every provision to maximize your savings and profit. In another article, I’ll show you how to turn $5 into $25 and pocket change into $5,708.00.