Just like you should review your insurance every year, you should review your mortgage annually as well. Your home is one of the largest investments in your lifetime. You want to make sure that you are making the most of your money when you pay it.
Why should you look at your mortgage? Keep reading to find out the most common reasons.
Your Life Changes
Your mortgage may have made sense for you at the time you took it, but what about now? Has anything in your life changed? Do you have a new job? Is your income different? Is your debt level the same or worse?
These factors will determine what you should do about your mortgage today. For example, if your income fell, you may want to see if you can get a lower interest rate to knock your payment lower. If your debt increased, you may want to get that lower payment just to make your mortgage affordable.
If your goals have changed and you are making more money, you may want to decrease your loan’s term. Maybe you want to own your home free and clear sooner than your current term allows. Refinancing into a shorter term can help you reach your goals.
The Market Changes
The market changes all of the time. Interest rates can change as often as every day or even multiple times a day. You may notice that rates are really dropping one day. That may make you want to go out and refinance your loan.
Before you do, you should make sure that it makes sense. A refinance is going to cost you money. Those closing costs could take away from your savings. Make sure that you will save more in interest by decreasing your loan’s term than it would cost you in closing costs. Typically, it does pay off, but of course, it varies by lender.
You May Want to Use Your Equity
As you review your mortgage, you may find that you have a large amount of equity. Some people leave it untouched until they retire. They then use that money as a part of their retirement plan. Others see it and want to use it now.
If you have equity in your home, you may want to make home renovations, consolidate debt, or even take a vacation. Some people use it as their child’s college fund and others leave it untouched. Every year, you can see where you stand with equity. Then you can decide what you want to do with it, if anything.
If you pay Private Mortgage Insurance, you definitely want to review your mortgage every year. This way you can see where you stand. Has your home appreciated enough and your principal been paid down enough to get you below that 80% mark?
If so, it’s time to eliminate your PMI. You have to request elimination of the PMI in writing. You’ll also have to pay for a new appraisal, but it will be well worth it if you can save several hundred dollars each month!
Reviewing your mortgage once a year is a great way to stay on top of things. Whether you refinance or not, reviewing your mortgage to see where you stand financially is always a good idea.