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Managing your Mortgage vs your Other Debts

Managing your Mortgage vs your Other Debts

A mortgage is the biggest financial commitment most people will make in their lifetimes. Mortgage payments usually run into hundreds or thousands of dollars a month, so it`s important that you take care to manage your mortgage versus your other debts.

Automatic payments
One very efficient way to manage your mortgage and ensure it gets paid every month is to set up an automatic payment with your bank. Since your mortgage payment stays the same every month, you can set up an online payment with your bank and then not even have to think about it.

Keep in mind, though, that if you pay your homeowners insurance and real estate taxes every month along with your principal and interest payment, those amounts could change. These changes usually occur once a year. You will receive a statement from your mortgage service provider telling you if your monthly payment is going to go up or down, so be sure to adjust the automatic payment with your bank.

Get a term that works
While a 15-year mortgage will get you a lower interest rate and also greatly reduce the amount of interest you pay, it will also mean much higher monthly payments. For example, a $200,000 mortgage at 4 percent, paid over 30 years means a monthly principal and interest payment of about $955 a month. The same mortgage paid over 15 years results in a payment of $1,480 a month, which is $525 more. Though you will save nearly $90,000 in interest with the 15-year option, you could struggle to make the payments. A better option might be getting the 30-year mortgage and paying extra every month. That way, if you ever run into financial straits, you can cut back on your mortgage payments without consequences.

Don`t overpay when trying to pay early
Because a mortgage is such a large commitment, many people dream of paying it off early. While that`s a noble goal and as illustrated in the example above can save thousands of dollars over the course of the loan, it`s something that should not take precedence over paying your other debts.

For example, it doesn`t make sense to pay extra every month toward a mortgage that has a 3.5 percent interest rate while only paying the minimum payment on credit cards that carry double-digit interest rates. If you have credit card debt, any extra money you can afford to pay should go toward paying off that debt first.

Don`t be afraid to refinance
If mortgage rates drop, it presents an opportunity to refinance and pay even less in debt payments. You have two options with a refinance to reduce payments. You can do a straight refinance, reducing your monthly payments and freeing up money for your other debts. Alternatively, if you have enough equity in your home, you can do a cash-out refinance and use the money to pay off your other debts.

 If you need help managing your debts, including your mortgage, resources such as debt relief are there to help.

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