A mortgage is the biggest debt most of us will ever acquire in our lifetime however it can be reduced with these few tips. Some are quite aggressive and we think the rewards are well worth it.
Tip #1) Pay your payment early rather than late. Most loans are calculated on a per diem rate. This means that your loan will charge you for every day you use the money in that month at the rate of the current balance. The math looks like this:Principle Balance of $225,000 x interest rate 5% divided by 12 and then by 30 days = $31.25 and you have the daily rate of interest factor. Then you simply multiply the number of days in between payments by the factor. 30 x $31.25 = $937.50 but if you paid 5 days early $31.25 x 5 = you would save $156.25 and when you pay less interest your balance goes down. Every time the balance is reduced you start with a lower bench mark. Remember: Balance x Rate divide by 360 (12 months x 30 days) and you will get your per diem. Then the per diem x the number of days in between payment.
Tip #2 To aggressively reduce your mortgage pre pay with each payment a lump sum of capital by diverting your spending to the loan. Most banks will gladly accept just be sure to check if you have a prepayment penalty or not. If you do then you will want to pay less than 20% of your loan balance to avoid any sort of penalty. To get extra cash to apply to your mortgage you can stop eating out twice per month. So if you normally spend $50 for dinner that times 2 will give you $100 to apply to the principle. You can also reduce lunch costs and bring your own delicious healthy lunch and save your lunch money: If you spend $10 per day, that’s $50 per week or $200 per month if you work every day. You could also give up the lattes and make your own. $5.00 per day for 5 days per week x 4 weeks would save you $100. When you add up the $100 in eating out + $200 in lunch + $100 in latte’s you will have $400 to put towards your mortgage.
Tip #3) if you are upside down in your mortgage as many people are you can write the lender and ask them to reduce the principle balance. You normally need to have a financial hardship… and who doesn’t these days. If simply asking does not work you can check out The Making Home Affordable website at http://www.makinghomeaffordable.gov/ they have excellent advice on how to work with your lender and get your balance, rate and payment reduced by using your current income and budget. The will estimate your new mortgage to be 31% of your income or $310 per $1000o. You can also hire an attorney. I heard of one who was able to reduce a loan by $300,000 in loss mitigation.
You will need to prove your income, your debts and provide a hardship letter explaining your situation. From this they will create a budget and determine what your new offer will be. Most will get a lower rate, balance and payment.
One of the factors that will determine your eligibility is the value of the property. If you don’t’ know it you can call a local Realtor or visit any of these sites:
The lender will be more likely to modify your loan if they understand that the value is less and you are willing and able to pay if they make the loan affordable.
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