Managing a Home Loan
The Balance’s Guide to Managing a Home Loan
How do you lower your mortgage payment?
The monthly mortgage payment can take the lion’s share out of your monthly income. You can reduce that share in several ways:
- Refinance your mortgage to a lower interest rate
- Seek a loan modification with an extended term and reduced payments
- Get a tax reassessment to reduce property tax
- Stop paying private mortgage insurance if you have 20% or more equity in the property
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When is a mortgage payment considered late?
Your mortgage payment is due on the first day of the month. It becomes late (and your servicer can charge a late fee) if it is not paid by the 15th of the month. Your mortgage payment goes into default if it is 30 days late (and your servicer may report your account to the credit bureaus). After 120 days late, your servicer may begin foreclosure proceedings .
How do you calculate a mortgage payment?
You can calculate your mortgage payment by hand, or you can use a mortgage calculator . Whichever way you go, you’ll need to gather some data: the loan amount, the interest rate, the number of years you have to pay, the number of payments per year, the type of loan, the market value of the property, and your income. Those last two will help you calculate other important figures, like the equity or your debt-to-income ratio .
Do mortgage payments go down over time?
Your mortgage payment may go down over time, but it depends on several factors. With an adjustable-rate loan , your interest rate can change and, thus, your mortgage payment, too. Refinancing your loan may also reduce your mortgage payment. If neither of these scenarios applies, your payment will remain roughly the same (excluding changes to property taxes, PMI, home insurance, or servicer fees).
What happens if you pay extra every month on my mortgage?
Making extra mortgage payments could help you shave years off your loan term, and that means paying less interest in the long run. If you do choose to make extra payments, make sure they’re paid toward the principal . Also, be sure to read your loan’s fine print—some mortgages may come with prepayment penalties if you pay them off too early.
Private Mortgage Insurance (PMI)
Private mortgage insurance is a policy that protects your lender in the event that you default on repaying the loan. It covers all or a portion of your remaining mortgage. The borrower pays for the policy although it benefits the lender, and it's sometimes required.
PITI is an acronym that stands for "principal, interest, taxes, and insurance." Those four things make up most homeowners’ monthly housing payments.
A debt-to-income ratio is a measurement of your monthly income compared to your debt payments. Lenders often use this ratio to determine your creditworthiness.
A loan-to-value (LTV) ratio compares the amount of a loan you're hoping to borrow against the appraised value of the property you want to buy. Lenders use LTVs to determine how risky a loan is and whether they'll approve or deny it.
Home equity is the portion of your property that you truly “own.” Your lender has an interest in the property until you pay off your mortgage, although you’re still considered to be the homeowner.
Amortization refers to how loan payments are applied to certain types of loans. Typically, the monthly payment remains the same and it's divided between interest costs (what your lender gets paid for the loan), reducing your loan balance (also known as paying off the loan principal), and other expenses like property taxes.
Deed In Lieu
A deed in lieu of foreclosure, sometimes referred to as simply a "deed in lieu," transfers a home's title from the owner to the bank that holds the mortgage. The action is taken in lieu or instead of having the lender foreclose on the property.
A mortgage servicer is a company charged that handles the management of your mortgage. It may or may not be your lender. The servicer is the company that will send your mortgage statements and bills, process your payments, and respond to any questions or concerns you might have.
A second mortgage (or “second lien”) is a type of home loan that you might get in addition to the mortgage you already used to buy your house. It requires an additional monthly payment and uses your home as collateral.
A first mortgage is the primary loan on a property. When a piece of real estate is financed by more than one mortgage loan, the original loan is referred to as the “first mortgage” or “first lien.”