January 31, 2011

Step # 7 - Let's Talk About Your Mortgage

You already know what's important about debt: use it judiciously, shop aggressively for the best rate, pay it down as quickly as possible. There is not much for me to add to that. But there are a few specifics that bear examining here.

  1. Consider refinancing. If your current mortgage interest rate is higher than what is currently available, you should consider refinancing. Important elements to consider are the fixed cost of the refinance transaction (NYS mortgage tax and "points" if required, are typically the biggest cost items) and how long you plan to stay in your home. When you pay up to refinance, you need to be sure that you'll get enough financial benefit. Start by determining the amount of monthly savings vs. the upfront cost. A good yardstick is that if you can recoup that cost within 18 months - go for it.
  2. If you have a low enough rate and plan to stay put for a while, start planning to pay your mortgage off early. It may sound like a daunting task, but it can be done, and you can save yourself thousands, perhaps tens of thousands of dollars in the process. Start small: pick a regular amount - $20, $50, $100 - and add that to your monthly payment. Be sure you designate that the extra is to go toward principal. If you don't your lender may not properly allocate the extra and you will miss out on the savings or have a struggle to correct the records after the fact. And keep notes of how much extra you are contributing. If there is ever a problem it is much more likely to get resolved in your favor if you have records of what you have paid.
  3. Once you start paying extra, make an effort to increase the extra at least annually. Once you're in the habit of paying extra it's a lot easier to bump up that extra. Hit your maximum 401(k) contribution at work? Put that extra toward the mortgage. You will be surprised how fast you can get your mortgage paid.

If you have small children, start paying extra now. If you can get your mortgage paid by the time they start college, you'll have a lot of extra cash flow at a time when it will really come in handy. As always, we're happy to help you with questions of cost and benefit, just give us a call.

Next - #8: Stamp Out Cash

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).