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For most homeowners, the biggest financial obligation is their mortgage payments. It’s not only the largest payment, and the largest total amount, but it’s also the largest thing someone depends on. It represents your home. The place you and your family live. It might have also become your new office over the past year. It is by far the most important bill someone pays.
Staying on top of your largest expense can be a challenge. It’s not a simple small bill you can pay without noticing it against your bank account. But when it’s as important as your mortgage, there’s no alternative. If you don’t make your payments, you’ll be forced out of your home.
Here are three tips you can implement to help stay on top of your mortgage payments.
If I have ever missed a payment for anything, it hasn’t been because I don’t have the money, it’s simply because I forgot. It’s a really silly reason to take on late payment charges or to incur additional interest. But it happens to everyone. As obvious as it seems, make sure your mortgage payments are set up to come out automatically. That way, you can’t just forget to pay it or get charged by your bank to take it from another account.
It’s also good to make sure the account the payments are coming out of is well funded. It might not be the account your paycheques go into, so just double-check. You could easily set up automatic transfers into the account when you get paid, or set a reminder on your phone to do a transfer every now and again.
It seems really straightforward, but it’s the easiest way to make sure you’re not missing payments and wasting money on penalties.
Every now and again, you hear about someone who has had a mortgage on their house for 30 or 40 years. Way too long of a time to have the same mortgage. Having to refinance for a longer period of time to make payments more affordable, or having to borrow against your home increases the interest that you end up paying, and prolongs the payment period. This takes away from (in my opinion) the biggest value of being a homeowner: being mortgage-free.
As a homeowner, unexpected costs and expenses are something that has to be considered. Whether it’ repairs, upgrades, renovations, things happen. That’s why I believe having an emergency fund is an important part of any financial plan and mortgage plan. It helps you make additional costs manageable and doesn’t put extra strain on your finances.
Having an emergency fund readily available to you will help ensure that you don’t have to borrow for unexpected situations. This will help make sure that your budget stays on track and reduces the opportunity for interest rates to eat up your cash flow.
Mortgage rates have never been as low as they have been the past few months. In the 80’s and 90’s mortgage rates were essentially credit card rates, which seems impossible now. It made a lot of sense to focus on paying down your mortgage as soon as possible back then, and I think it still has advantages today.
Rounding up your mortgage payments (even a little) will help you make extra payments towards the principal of your mortgage. This is helpful because it can help you pay off your mortgage quicker. Also, when you need to renew your mortgage, if mortgage rates have increased, you’re renewing less of a loan, so your payments won’t jump as much.
My mortgage payments for my first five years were about $410 every two weeks. I paid extra for a while, and when I renewed my mortgage recently I locked in at about $374 every two weeks for the next five years. It’s not very often that your largest living expense gets lower over time. But doing little things to help your future self out, makes sense and cents.
If you have a 25 year mortgage with biweekly payments, you’ll end up making 650 payments. Doing things to make sure you’re able to make each payment is so important to eliminating extra costs and putting your money in a position to work for you.
Derek Condon, CFP®
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