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Advantages of Making Extra Mortgage Payments

A house is the biggest purchase most people make in their lifetimes. The mortgage they obtain to finance that house is likely the biggest single investment they will ever make.

Image showing a large home and yardEven with the popularity of shorter terms and creative loans, most mortgages are still the tried-and-true 30-year conventional variety. First-time home buyers staring down the gauntlet of 360 payments spread over the next three decades of their life can feel like there is no end in sight. And for those who dare to look at their amortization schedules, that no-end-in-sight feeling can be even greater.

But there is a way to get ahead of the game: making extra mortgage payments.

Why It Makes Sense to Make Extra Mortgage Payments

Why does it make sense to make extra mortgage payments? Put simply, you will save significant amounts in interest. Most mortgage contracts allow borrowers to make extra payments, and they allow all of the extra money to be applied to the principal amount of your loan. That means you are paying down the real amount of the loan – the money you borrowed – faster. Because the interest part of your loan is calculated on the amount of principal you still owe, reducing your principal amount greatly reduces the interest amount.

According to the web site interest.com, “a $200,000 30-year home loan with an interest rate of 5% would cost $186,512 in interest with the traditional 12 payments a year. Make the equivalent of 13 monthly payments every year, and the loan will be retired in 26 years and you will pay only $153,813 in interest — a savings of $32,699.”

That’s nothing to sneeze at.

How to Make Extra Mortgage Payments

When it comes to making extra payments on your mortgage, there are a variety of tactics that can be used. Each has the same goal in mind: to reduce the principal and, thereby, reduce interest.

The tactics for making extra mortgage payments include the following.

Accelerated Payment Schedule

Rather than making your mortgage payment once per month, or the equivalent of every four weeks, you could make payments every two weeks. This biweekly payment plan results in 26 half-payments, which is the equivalent of 13 full payments for the year. The extra payment each year can shave off eight years from a 30-year loan.

Extra Principal with Each Monthly Payment

If you’re looking to chip away at your mortgage at a more gradual pace, pay a little extra each month. Check with your lender to make sure the additional payment goes directly to the principal. Depending on how much extra principal you pay, you could shorten your loan significantly. And, best of all, because your are shortening the loan duration, you will save significant amounts in interest.

One Additional Payment Per Year

Another tactic is to make one additional, principal-only payment per year. Some people who do this use their income tax refund for this purpose.

One Additional Payment Per Quarter

Making an additional payment each quarter results in four extra payments per year. On a $220,000, 30-year mortgage with a 4% interest rate, you would cut 11 years off your mortgage and save $65,000 in interest.

Lump-Sum Payment

Applying a lump-sum payment toward your principal balance when you come into extra cash — a bonus at work, a sizable inheritance — can shave time from your mortgage. This approach isn’t as consistent as some of the other methods, but, if the lump payment is large enough and depending on where you are in your timeline, it can eliminate many years.

This blog post was written by experts at Mortgage 1. Michigan Mortgage is a DBA of Mortgage 1.

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Success Story: Amanda and Steve Rudat

Credit scores don’t appear overnight – it takes time, energy and commitment to grow and build your score.

Amanda and Steve Rudat know that first hand.

“2017 was a good year for us to buy, as we had been working on our credit and finally had the stability in our careers to purchase a home,” Steve said. “We were renting places and getting nothing back in return. We had the money saved up and faith that we could make the commitment.”

Katie Bultema with Greenridge Realty helped Amanda and Steve find the home that best fit their needs.

“We wanted to be able to stay in the area,” Amanda said. “It was also very important for us to make a smart purchase within our budget. We wanted a home that had space for entertaining and room for our dogs to play.”

The couple knew this home would not be their “forever” home, so they focused on properties that had good re-sale value or homes that could appeal to renters in the future.

“Katie was a pleasure to work with and we would recommend her to anyone looking for a Realtor,” Steve said.

Katie was the perfect Realtor for Amanda and Steve. When they set out to find the perfect Loan Officer, they were connected to Loan Officer Hayley Woodworth.

“The person we were last renting from in Montague had worked with Hayley and strongly recommended her,” Amanda said. “We had been friends for a long time and to hear him speak so highly of Hayley was a big interest to us.”

“After getting to meet with Hayley and speak to her, it was really a no-brainer,” she added. “It just felt like a good choice for us.”

“Hayley was everything we were hoping for,” Steve said. “Attentive, supportive and a real go-getter. I can’t think of one time where we were wondering what was going on, what our numbers would look like or if someone would call us back.”

“When you are making these kinds of purchases, it is so refreshing to have a person like Hayley in your corner. You feel like you made a friendship, not a transaction. I feel like she had our best interest at heart.”

Amanda echoed Steve’s thoughts.

“Hayley and the staff work very hard, they are pleasant to be around and make us feel special,” she said. “It feels like family and friendship based on the way the team took care of Steve and I. So responsive, so supportive and we loved that about them. Things that could wait until the next day, Hayley was taking care of at night with us on her cell phone.”

In 2017, Hayley exceeded the couple’s expectations. Earlier this year, when Amanda and Steve decided to purchase their second home, Hayley was the first lender they called.

“We called her up out of the blue and this woman got right to work on things again,” Steve said. “She remembered exactly who we were and she was so thrilled to hear that we were looking to buy again. In no time flat, Hayley had numbers for us to start looking over again so we could budget and plan for our new place.”

“As many times as we shifted gears on her, Hayley just rolled with us on it,” he continued. “We ran so many different scenarios, properties and numbers with her and it was always the same great smile, voice and service.”

“We truly believe Hayley enjoys seeing people succeed in their dreams and purchases and it shows in the way she supports her clients. We are so happy to have found her!”

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Mistakes to Avoid When Shopping for a New Home

Shopping for a new home can be one of the greatest experiences of a lifetime! When you venture out to purchase a home, make sure you set yourself up for success and an amazing experience.

Avoid these common mistakes:

  1. Not having your financing in order when you are ready to make an offer. It is critical to have a pre-approval from a trusted lender. Especially in a low inventory, competitive market, the buyer who has financing in place is ready to write the offer and “win” the home. So, don’t put yourself in the position of falling in love with a home that you aren’t able to bid on quickly!
  2. Not taking the time to educate yourself by window shopping and researching the market. Noel Berg with At Home Realty says, “A critical step in home buying is going to Open Houses, driving through neighborhoods and having a Realtor who educates you on home values so that you feel comfortable and confident when you find THE home! The more properties you can visit, the more confident you feel making an offer!”
  3. Submitting a low-ball offer. Make sure you look at all of the variables before making a low-ball offer. How long has the home been on the market? If it’s a seller’s market, it’s probably off the table. Does the house need updates, making it over priced? Your Realtor can craft an offer that won’t be too aggressive or offensive in the current market.
  4. Including too many contingencies. Contingencies are basically “walk away” clauses. It is important to protect your own interests, but, typically, the more contingencies in your offer, the less enthusiastic the seller may be to deal with you, especially in a seller’s market. Your Realtor will guide you as to which contingencies are the most critical to protect your interests.
  5. Using the seller’s agent. A real estate agent’s loyalties and responsibilities change depending on the transaction. A seller’s agent works for the seller to get the highest amount of money in the shortest period of time. Their fiduciary responsibility is to the seller at all times. The buyer’s agent works with the buyer to teach their clients about the market, to show them houses, and advise them when it comes time to make an offer and negotiate with the seller.
  6. Blindly listening to friends and family members. Though your friends and family have your best interests at heart, unless they are a Realtor, they are simply not experts; often times offering inaccurate and incorrect advice.
  7. Buying a home that is too expensive. Many buyers get their pre-approval letter and set out to look at houses at the top of the price range without thinking it through. It is important to work through a budget, and evaluate your spending habits and the increased cost of owning a home.
  8. Letting your emotions guide you. Purchasing a home will likely be one of the biggest and most important purchases in your lifetime. So, it makes sense that there will be emotions, concerns and questions weighing on you during the process. Make sure you take the top seven guidelines seriously so that you are empowered by logic, market awareness and professional advice!

A professional lender and Realtor will guide you home with confidence and authority.

Image showing a family in their new home.

Own a Home with Only 3 Percent Down

Can you really own a home with 3 percent down?

Yes, yes you can!

The 3 percent down payment option is similar to existing conventional loan programs with much higher requirements. This program, however, can better serve first-time homebuyers because of the following.

  • The mortgage provides the security of a fixed-rate loan.
  • The property can be a one-unit single family home or condo.
  • At least one borrower has not owned a home in the last 3 years.
  • The property will be the new owner’s primary residence.
  • The loan amount is below $453,101.

According to the National Association of Realtors, the average home price is around $250,000. The 3 percent down conventional loan is a great way to expand homebuyers purchasing power.

According to Fannie Mae’s Loan Level Price Adjustment (LLPA) graph, borrowers can have a score as low as 620 to qualify.

Interest rates can be appealing as well.

These loans include rates only about one-eighth to one-quarter of one percent higher than rates available to borrowers putting 5-10 percent down.

Is it worth it to try and save more? The time it takes to save an extra 2 percent for a larger down payment could mean higher home prices and tougher qualifying conditions in the long run.

Are you ready to find out your options? Contact one of our Loan Officers to learn more.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

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Finding it hard to save for a down payment?

Making small changes to your habits can make a big difference in your ability to save. Saving takes some pre-planning and discipline and a well-executed strategy.

Here are a few ideas to help you save.

  1. Take it right out of your paycheck and transfer a fixed amount into a special savings account. This is probably the most convenient and practical way to save. Take it right out of your paycheck. Make sure you set up an automatic direct deposit into a savings account that is earmarked for your down payment only. Commit to using this money for a down payment and no other purpose.
  2. Take advantage of special programs including down payment assistance programs. Check with your lender to see what type of down payment assistance programs they offer. See if you qualify with the FHA, the U.S. Department of Agriculture Rural Housing Service and the Veterans Administration. Also, check out local housing authorities, such as MSHDA. If the lender doesn’t offer these programs find a knowledgeable, reputable local lender that specializes in these programs.
  3. Skip vacations for a year. Make if a fun goal to forego any large vacations. Plan a staycation, or a night somewhere, and focus on how great it feels to get closer to your goal.
  4. Lower your expenses. Look at your budget to see what small things you can cut per month. Cut out a coffee per week, make your own pizza on Friday night. If you don’t have a budget, sit down and make one and evaluate it quarterly to see how you are doing. Shop at Costco, Aldi and other discount stores.
  5. Sell your stuff on EBAY or Craigslist. If you have Designer clothes, furniture, antiques, art, gaming devices that you barely use, consider selling them and putting the proceeds in your down payment account.
  6. Start a Side Hustle. Commit to a temporary period of time and put all of the money in your down payment account.
  7. Ask for a raise. If you’ve been thinking about a raise, and feel you deserve one, now may the time to talk to your superior about the value you bring to your organization.
  8. Use gift money. Parents or relatives may be able to gift money to help out a first-time home buyer. Gifts can come from your family, spouse or a domestic partner. Be sure to include the amount of the gift on your loan application and check with your lender as the best way to obtain and track this. To be recognized as a “gift” the donor will have to sign a gift letter saying there’s no expectation of repayment, interest, or anything else.
  9. Be wise with your money. Think about your purchases before you make them. Are there cheaper brands at the grocery store that are the same quality as the premium brand? Are there restaurants that offer the same quality and experience that are a little less expensive? Do you need another tan sweater? Be mindful about your purchases and avoid impulse purchases.
  10. Use your tax refund. Set aside a percent of your tax refund to deposit into your down payment savings account.

For more ways to save for a down payment, reach out to our team at Michigan Mortgage. We’re here to help in any way we can.

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Success Story: Bianca and Paul Urban

In the mortgage business, we help our clients achieve a small portion of the “American Dream.”

Landing your dream job, home ownership, getting married, having children – memories that will last a life time.

For Bianca and Paul Urban, their dream began to take shape in 2016.

“I had been renting for about five years and Paul had purchased his first home a few years prior,” Bianca said. “We got engaged and started putting our lives together in the Spring of 2016 and together decided to put his home up for sale with the goal of purchasing a new home in early 2017.”

Bianca is a hairstylist in Holland and Paul is a truck driver out of Byron Center. Together, they decided that the Zeeland area was the perfect place to call home. Their goal was to be settled before tying the knot in 2017.

“Our Realtor is a good friend of ours – Nicole Kayser with Five Star,” Bianca said. “She set up our connection with Mark and the team at Michigan Mortgage.”

“Nicole was great! She was there to answer any questions and we are so grateful she led us to working with Mark. They made a great team and were in constant communication to help us reach our goal of home ownership.”

Bianca and Paul knew what to expect while working with Nicole, but weren’t sure about the financial side of things. This was their first big purchase as a couple, so they relied on Nicole’s recommendations.

“It was easy for us to trust Mark with Nicole’s recommendation and how personable he was,” Paul said. “His ability to help us find the best rates without having to shop around and apply at several different places was a bonus.”

“Working with Mark was honestly super easy and comfortable from the first meeting,” Bianca added. “It can feel awkward or intimidating when going over all your finances with someone and we never felt that way through this entire journey. Mark was there to answer any questions we had and was there at each step of the process.”

“He genuinely cares for his clients and wants to see them succeed.”

They found their dream home on the first day of their search, wrote an offer contingent on the sale of Paul’s home and it all worked out as planned.

“Our expectations were definitely met with our situation to sell and buy at the same time having Mark and Nicole guide us through the process,” Paul said.

“I always recommend getting in touch with Mark anytime I hear a friend of a client of mine in my chair start to think about buying or selling their home,” Bianca said. “For us, Mark has become more than a mortgage lender. He and his family are friends we are thankful to have!”

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Can you get a mortgage with no credit?

Sometimes young clients who have not established credit are interested in getting home financing. Other times, clients who have never taken out any credit and pay cash for everything decide it is time to buy but don’t have enough cash.

How did those folks get into a home loan?

With most sub-prime loans going by the wayside, options for these people are limited but not completely closed.

FHA has a no credit loan when a borrower has no credit score but can prove a 12-month pay history on three lines of non-traditional credit.

For example, if someone has utility bills, car insurance, rent, or even something like Netflix, they may be able to get financing. We simply have to get the pay history from the creditor to show they have been on time for 12 months. Note that if they have any derogatory credit like collections, they can negate this option.

Oftentimes, clients with no score also have no non-tradition credit they can add. These clients will need to establish a score. This is not as difficult as it sounds.

If they cannot get a traditional credit card, they may be able to get a secured credit card. Most banks and credit unions will give a credit card that is secured by cash. There may be a minimum amount required, but usually $300 deposited with the bank can secure a card. The consumer then uses that card just like any other credit card to establish credit. This will take about six months and will be good credit for them as long as the balance is under 30 percent of the high credit limit when credit is pulled.

Pitfalls: Many people think that paying off derogatory credit (like collections) or closing out accounts with late payments is s good thing. While this may be the right thing to do, it may not help their score. Having new activity on a derogatory account can often LOWER the score!

Every situation is unique. That is why a consultation with a knowledgeable advisor is the best course of action. Call us for more details on how to establish credit and what is not advisable given your situation.

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HELOC vs. Cash-Out Refinance

The mortgage industry has one flaw: There is no built-in way to access equity.

For many home owners who want to use their equity to pay off debt, start a business, invest in the market, or just use the money for purchases, they cannot unless they take out another loan. The two most popular ways to do this is with a home equity line of credit (HELOC) or a cash-out refinance.

A HELOC is a second mortgage secured by your home. A cash-out refinance is a first lien mortgage that “cashes out” some of your equity in your home. Which is better depends on your situation, the market and your goals.

Here are a few factors that might help make the decision easier for you and your family.

1. Take a look at your current interest rate. If your mortgage interest rate is low compared to the current market and you are borrowing a low amount compared to what is owed on your first mortgage, a HELOC maybe you best option. Why? Although the equity line is higher interest, it is only on a relatively low amount and you can keep your low rate on your first mortgage.

If current rates are lower than your first mortgage or if you are borrowing an amount approaching 50 percent of the current amount owed on the mortgage, it may be better to do a cash-out refinance. This is because the equity line interest is generally higher than the current market rate could make your payment higher. Additionally, because the equity line is generally adjustable, there is a risk that volatility will make your payment unpalatable.

2. Analyze payment vs. interest savings vs. risk. If your ultimate goal is to keep your payment as low as possible, an equity line might be a good choice. Remember, the equity lines are usually interest only and therefore the monthly payment stays relatively low. However, there is a risk in them because they are also adjustable.

If you’re goal is to pay your mortgage off as quickly as possible and pay the least amount of interest, a cash-out refinance is often times better. Again, this is because you pay both principal and interest on cash-out refinances and they are fixed rates.

3. Pay attention to costs. If the up-front costs are a determining factor, the equity line is the way to go. HELOCs are generally free, whereas, a cash-out refinance will add principal to your current mortgage.

4. Keeping it all in one loan. Many people do not like the idea of having two different loans. Even if the equity line is with your first mortgage servicer, there will be two different loans with two different payments and two different statements. These will also have different terms and most likely different rates. On a cash-out refinance there will all be one loan, one term and one rate.

When determining whether to do an equity line or the cash-out refinance it is important to determine long term goals, what your current needs are, and which option will put you in a better position in the long run.

Talk to a trusted advisor to help you navigate your best options.

Image showing a family tree for the Fredricks Family.

Success Story: The Fredricks Family

As part of our “Success Story” series, we’d like to introduce you to the Fredricks Family, a group of parents, siblings, cousins and friends, that have trusted Michigan Mortgage to guide them home. This is their story.

At Michigan Mortgage, it’s a family affair. We employ husband and wife teams, cousins and life-long friends.

Often times, the families we work with are related too. It’s an honor and a privilege when multiple generations – like members of the Fredricks Family – put their trust in Michigan Mortgage.

It all started many, many years ago. In third grade, in fact. Long before Rob Garrison was a licensed Loan Officer, he spent his days on the playground with Brian Fredricks. A friendship was born and it has lasted for nearly half a century.

“My dad, Brian, originally recommended Rob to me,” said Zach Fredricks. Because Brian had closed a loan with Michigan Mortgage years ago, and the two have been friends for so long, Zach was convinced that Rob and his team were the right fit.

He made the right choice.

“Early in the process, Rob advised us on ways in which to improve our credit score and drop off hundreds of dollars a month in interest making our dream home affordable,” Zach said.

“There were several times Team Garrison saved the deal,” he continued. “During the appraisal, when calculating cash to close. It’s unlikely that we would have been able to make the home sale happen without their expertise.”

After Zach moved into his dream home, his cousin Conor met with Rob to begin the home-buying process for the first time.

“Being a first-time home buyer, I wanted to work with someone I could have an open discussion with about my goals and how to best achieve them,” Conor said. “I trusted Rob to guide me through the process and was always comfortable asking him even the simplest questions.”

“I was purchasing a house from a family friend without a Realtor, so I needed someone to fill in any areas that typically would be handled by an agent and knew Rob would be willing to work with me.”

“I mention Rob anytime I talk with friends or family looking to get into a new place,” Conor said. “At the very least he is a great person to talk to with open questions and he can educate you on parts of the process you may not be familiar with. He knows how to layout your options clearly and help you hit your financial goals.”

The family tree doesn’t stop there. Before Zach and Conor worked with Team Garrison in 2018, they worked with Maury and Karen Fredricks and their daughter, Sandi.

“We initially went to Rob because he is a friend of ours,” said Karen Fredricks. “We had a complex issue and wanted to deal with someone we trusted with our personal information.”

“Rob and his team have a turn key system that is fast and efficient,” Karen said. “He proved to get the job done when others couldn’t.”

“I really couldn’t believe how fast Rob and his team got our deal done, it was within weeks,” she said. “It seemed like everyone had a task to complete the process from start to finish and their response to questions and requests was second to none.”

Team Garrison always found a way for the Fredricks Family, and because of that, they would recommend Michigan Mortgage “a thousand time more” because “they are truly the best.”

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Is there a “perfect” time to buy a home?

No matter what is happening with home prices and mortgage interest rates, the right time to buy a house is when you are ready to take on the financial and emotional responsibilities of homeownership.

It’s easy to fall in love with a house, but committing to one for the long term can be more challenging.

“Buying a home is a serious investment,” said Loan Officer Rob Garrison. “Before you start shopping home listings, it is important to sit back, do your homework and analyze your personal and financial goals as well as your lifestyle before you take the plunge.”

“Don’t buy just because everyone else is, make sure you are ready.”

Start by answering these questions.

1. Why do you want to buy?
An important first step is to evaluate your reasoning behind wanting to buy. What do you hope to gain from purchasing a home? How does that fit into your short and long term goals? Consider how long you plan on spending time in one place, as it can tie you to that place. It is
important to take your career into consideration as well as the possibility of an expanding family.

2. Do you know what you can afford and still continue to live the lifestyle you are accustomed to?
You will likely need to take out a mortgage. It is important to begin by checking your credit score from three different reporting bureaus to assess whether you are able to obtain a mortgage. Then, there is the question of your down payment. There are zero down government options as well as 3-20 percent options, depending on your situation. Looking at your cash savings is an important first step.

3. Will you be staying there for five years or more?
When you purchase a home, the general rule is that you want to be sure you will be in the same location for at least five years. Otherwise, you are likely to take a hit financially. Of course this depends on the area you live in.

4. Do you have 3-6 months of emergency savings?
A good rule of thumb is that you have 3-6 months of living expenses in an emergency fund for unforeseen events. Home ownership also requires maintenance and repairs, so a slush fund is recommended to pay for repairs as they crop up.

If after careful evaluation you aren’t ready to purchase a home, there are great short term options to fit your needs. If you are looking for guidance to get yourself ready to purchase, enlisting a trusted, knowledgeable mortgage advisor is a great first step to realizing your dream,
whenever that might be!