How Is A Pre
A pre-payment penalty is calculated based upon how long the mortgage has aged since its origination date. In most cases, the pre-payment penalty will be for a period of three years and it would work like this:
- If the mortgage is paid off in the first year, the pre-payment penalty is 3% of the loan balance
- If the mortgage is paid off in the first year, the pre-payment penalty is 2% of the loan balance
- If the mortgage is paid off in the first year, the pre-payment penalty is 1% of the loan balance
This is a 3-2-1 payment schedule based upon how much time has passed. If your loan amount is $200,000, then the actual penalty for paying off your mortgage or selling your home before the three year mark would be as follows:
Loan Amount of $200,000
Penalty in Year 1 = $6,000
Penalty in Year 2 = $4,000
Penalty in Year 3 = $2,000
These pre-payment penalties would exist with a subprime loan. You can see they can be expensive so it is important to know what your plans are before entering into a mortgage agreement where a pre-payment penalty exists.
What If I Am Charged Post
Lawyers are investigating claims that banks such as Regions Bank may wrongfully charge post-payment interest on FHA loans despite FHA rules.
There are around 1,500 locations of Regions Bank across 16 states including Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas. Regions Bank loan options offer a variety of affordable home loans, including FHA fixed rate loans, which they claim offer a low down payment and fixed monthly payments, and are popular with first-time home buyers who may not qualify for other loan programs.
Consumers have already taken legal action against other banks which allegedly charged them post-payment interest, but lawyers are investigating Regions to see if the bank has violated current FHA rules by charging post-payment interest on newer loans.
If you had an FHA loan through Regions Bank that you sold, refinanced, or paid off within the last four years and were charged post-payment interest fees, you may qualify to take legal action. The litigation process can be daunting, so Top Class Actions has laid the groundwork by connecting you with an experienced attorney. Speaking with a qualified attorney can help you evaluate your eligibility, navigate the complexities of litigation, and maximize your compensation.
Refinanceor Pretend You Did
Another way to pay off your mortgage early is to trade it in for a better loan with a shorter termlike a 15-year fixed-rate mortgage. Lets see how this would impact our earlier example. If you keep the 30-year mortgage, youll pay more than $158,000 in total interest over the life of the loan. But if you switch to a 15-year mortgage, youll save over $85,000and youll pay off your home in half the time!
Sure, a 15-year mortgage will probably come with a bigger monthly payment. But if it fits within your housing budget, itll totally be worth it! And hey, maybe youve boosted your income or lowered your cost of living since when you first took out your mortgagethen youd definitely be able to handle the bigger payment.
You can refinance a longer-term mortgage into a 15-year loan. Or if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like its a 15-year mortgage. What if you already have a 15-year mortgage? If you can swing it, imagine increasing your payments to pay it off in 10 years!
Don’t Miss: Bayview Loan Servicing Reviews
Choose An Accelerated Option For Your Mortgage Payments
An accelerated payment option lets you make weekly or biweekly payments. With this option, youre putting more money toward your mortgage than with a monthly payment.
Accelerated payments can save you money on interest charges. By accelerating your payments, you make the equivalent of one extra monthly payment per year.
Pitfalls Of Paying Off Your Mortgage Early
Many homeowners think that they should pay off their mortgage early to get out of debt, but does it always make sense?
You do not want to pay off your mortgage and end up low on cash. It’s much easier to take cash out of a checking account when needed than it is to refinance by pulling it out of your home loan.
Ask yourself if you’ll need liquid cash in the near future. If the answer is yes, you’re better off putting your extra money in savings â not toward your mortgage.
Always have a small savings buffer to help you pay for immediate expenses.
Recommended Reading: Usaa Auto Loan Pre Approval
What The Early Mortgage Payoff Calculator Does
Do you want to pay off your mortgage early? Maybe you have 27 years remaining on your home loan but you would rather pay it off in 18 years instead. The early payoff calculator demonstrates how to reach your goal.
The mortgage payoff calculator shows you:
How much more principal you would have to pay every month so you can pay off the loan in a certain number of years.
How much interest you would save by paying off the loan early.
There are many reasons you might want to accelerate the mortgage’s payoff, but the motivation usually boils down to either or both of these:
You want to own your home free and clear by a milestone in life, such as your retirement or the beginning or end of your kids’ college years.
You want to reduce the total interest you pay over the life of the loan.
To steadily pay off the mortgage early, you need to know how much more to pay toward the principal balance every month to accomplish that goal. This calculator lets you do that.
When paying down the principal on a mortgage faster, keep in mind that each servicer has its own procedures for assuring that your extra payments go toward the principal balance instead of toward future payments. Contact your servicer for instructions.
Will Other Investments Beat Paying Off A Mortgage Early
Is it better to pay off your mortgage or invest? Ultimately, its a personal decision, but investing could be more sensible.
Sadly, the math tells us its almost always better to invest in other places than in your mortgage, says Richard Bowen, CPA and owner of Bowen Accounting in Bakersfield, California.
Mortgage rates are lower than theyve been in recent years, so if paying off your mortgage early leads to a return equal to your interest rate, that return would likely be lackluster compared to the annualized return for the S& P 500 roughly 10 percent over the last 90 years.
A potentially better use of the funds might be to take the cash youd use to pay off your mortgage and leverage it into buying a cash flow-positive property like multi-family real estate or single-family homes that have the potential to offer higher long-term returns, Bowen points out.
Any choice poses a risk, however. Even after paying off your mortgage early, real estate prices could plunge, leaving you with a potential loss. Carefully consider which risks youre willing to take. Ultimately, you might be better off not paying your mortgage off early.
The thing is, no one can give you a guarantee on an investment, Bowen cautions. You can put your money in the stock market and lose it. You can put your money in real estate and it doesnt perform as well as you expected it to.
Recommended Reading: Defaulting On Sba Loan
How Much Prepayment Penalties Can Cost
The way your prepayment penalty is calculated varies from lender to lender. Federally regulated financial institutions, like banks, have a prepayment penalty calculator on their website. You can visit your banks website to get an estimate of your cost.
Your cost depends on factors such as:
- the amount you want to prepay
- the number of months left until the end of your term
- interest rates
- the method your lender uses to calculate the fee
The prepayment penalty will usually be the higher of:
- an amount equal to 3 months interest on what you still owe
- the interest rate differential
The lender will usually use the IRD calculation if:
- the interest rate on your mortgage is higher than the current interest rate and
- you signed your current mortgage contract less than 5 years ago
The calculation of the IRD may depend on the interest rate in your mortgage contract. Lenders advertise interest rates for the mortgage terms they have available. These are called posted interest rates. When you sign your mortgage contract, your interest rate may be higher, or lower than the posted rate. If your interest rate is lower, its called a discounted rate.
How Can I Pay Off My Mortgage Faster This Year
Pay an additional mortgage payment each year . Many homeowners choose to make an additional annual payment to get their mortgage faster. One of the easiest ways to make an additional payment every year is to pay half of your mortgage payment every two weeks instead of paying the full amount once a month.
Recommended Reading: Usaa Mortgage Credit Score Requirements
How Extra Mortgage Payments Work
Real estate attorney Rajeh Saadeh explains the concept behind accelerated payments:
Say you have a 30year mortgage. You can make additional payments applied to your principal at the time your mortgage payment is normally due, or earlier.
Or you can do so at more frequent intervals during the year, he says.
Any time you pay extra on your mortgage, you need to indicate to your lender that the money should go toward loan principal not interest.
That will reduce your loans term and enable you to pay off your loan more quickly, Saadeh explains.
But you dont want any extra payments to go toward your loans interest that wont reduce your principal owed or shorten the life of your loan.
Make sure your lender or servicer is applying any extra money toward principal as its first priority. Otherwise, youll need to indicate that your extra payments should be applied that way.
Can You Get Rid Of Pmi On An Fha Loan Without Refinancing
It could be possible to eliminate your FHA mortgage insurance premium without refinancing. But only if you got your loan before 2013 or put at least 10% down when you bought the home.
- If you got an FHA loan between January 2001 and June 3, 2013: Your MIP will go away once you have 22% in home equity
- If you got an FHA loan after June 3, 2013: Your MIP will go away after 11 years of payments if you put at least 10% down. If you put less than 10% down, the coverage lasts until you pay off the loan
If your MIP wont expire on its own, you will need to refinance out of your FHA loan to eliminate its MIP.
Even if your MIP will expire in a few years, a refinance could still save you thousands of dollars, especially if you can lower your interest rate in the process.
Read Also: Usaa Auto Loan Rates
Is Now A Good Time To Refinance My Mortgage
Now might be a good time to refinance, but it depends on your situation. Weigh the pros and cons of the situation to see if it makes sense. Think about all aspects of the loan, including closing costs and the impact of the new loan on the amount of interest you will ultimately pay.
How long to pay off mortgageWhy you might never want to pay your mortgage off? One of the reasons many people don’t pay their mortgage is because the extra money they put into their home isn’t as liquid as the money in the account. However, once the mortgage has been paid off in full, you will be refunded the amount with which you transferred money to the bank. This money can be saved or spent on other things at will.What is t
Payoff In 14 Years And 4 Months
The remaining term of the loan is 24 years and 4 months. By paying extra $500.00 per month, the loan will be paid off in 14 years and 4 months. It is 10 years earlier. This results in savings of $94,554.73 in interest.
If Pay Extra $500.00 per month
|Remaining Term||14 years and 4 months|
|24 years and 4 months|
The Mortgage Payoff Calculator above helps evaluate the different mortgage payoff options, including making one-time or periodic extra payments, biweekly repayments, or paying off the mortgage in full. It calculates the remaining time to pay off, the difference in payoff time, and interest savings for different payoff options.
You May Like: Usaa Auto Loan Refinance Rates
Increase Your Regular Payments
To give yourself the best of both worlds, consider going with a longer amortization and increasing your regular payments using your mortgage loan prepayment privileges. For instance, if your monthly mortgage payment is $1,200, you could increase this to $2,400 per month, if your loan terms allowed for double-up payments. In effect, you would be paying off a 20-year mortgage in just 10 years. Better still, youd have the flexibility to switch back to the lesser regular monthly payment if you were to experience any changes like a sudden job loss or the birth of a child.
Should I Pay Off My Mortgage
Just because you can pay off your mortgage early doesnt necessarily mean that you should. Of course, it would feel great to rid yourself of a huge financial burden like a mortgage. But if you really want to know if its a good decision, you have to look at the math.
There are pros and cons to paying off your mortgage early. Whether the pros outweigh the cons will depend on your overall financial situation.
Also Check: Usaa Pre Approval Car Loan
A Mortgage Kept Me Hungry
I’ve talked to several people, including readers of my personal finance blog, Financial Samurai, who had similar experiences after paying off large amounts of debt early.
“I’ve definitely noticed that the closer I get to financial freedom, the less motivation I have to go above and beyond at my job,” one person told me. “It’s almost as if we need that monkey on our backs to keep us moving forward.”
And then there are some who feel the opposite.
A reader on Financial Samurai commented: “I just paid off my house after eight years and four months. Now I’m extremely motivated to put as much as possible into other investments, such as the stock market, my own business and rental property. I’m 35 and self-employed, so I don’t have a pension or company 401 to rely on.”
Of course, everyone is different. For me, a mortgage fueled my hunger. Without it, our monthly cash flow increased by $2,500 per month, and we saw it as extra spending money.
The most important lesson I learned from paying off my mortgage early is that you should always have something that keeps you motivated and financially driven. When you’ve got your living costs covered and things are easy, it’s tempting to get soft and ignore your finances.
Only the most “gung-ho” people will bother to take risks or put in the extra hours to get that raise. If you have no financial burden and no one is depending on you to provide, it doesn’t make sense to work twice as hard.
What Is Mortgage Insurance
When it comes to mortgage insurance, private mortgage insurance and mortgage insurance premiums are similar but come with some slight differences.
- Applies to conventional loans
- Rates depend on your mortgage term, down payment, and credit score
- Monthly costs between 0.14% and 1.86% of the loan amount, depending on your credit score and loan term
- Only applies to FHA loans
- Rates depend on your mortgage term, down payment, and loan amount your credit score isnt a factor
- Upfront premium cost of 1.75% of the loan amount annual MIPs cost between 0.45% and 1.05% of the loan amount, depending on your down payment
You May Like: Usaa Auto Refinance
How Do I Check For A Prepayment Clause
The good news is that the law requires lenders to disclose prepayment penalties, along with monthly fees and other loan details. As mentioned, youll want to read the fine print in this case, the loan estimate or the paperwork that youll sign at closing, where youll find it in the addendums and/or disclosure documents with all the other terms of your mortgage loan.
Its perfectly fine to ask your lender if they charge a prepayment penalty if they do, ask them to show where in the paperwork you would find the details. If you already have a loan, you can look at your monthly billing statement, as it should be outlined in there.
There are some instances where prepayment penalties are illegal. These include:
- USDA loans
- Student loans or personal loans .
Conventional Loans Vs Fha Loans
Recommended Reading: Fha Loan Maximum Texas