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When you buy a house, there are several components included in the monthly mortgage payment. Understand how much each represents and do an analysis on them periodically.
Loan Payment – Principal (original sum of money) and Interest: The mortgage payment from the loan company for you to buy a building or piece of real estate is amortized over a set number of years (i.e. fifteen, twenty). For long term loans for example, banks many times will give you a fifteen year amortization for the loan but will give it a five year term ending with an optional balloon payment. This allows them to decide not to renew the loan after five years if the interest rate has grown too high. They normally raise the interest rate accordingly. You can accept that or pay the balloon yourself or refinance the loan with another willing lender.
- Rates drop: You as the payee need to reevaluate these loans especially when the market interest rates have dropped at the end of the term. In this environment and assuming you have been a solid paying customer, you should be able to get a lower rate loan after the five years. Go bid them out as quickly as possible months before they terminate.
- Rates rise: You may get the best deal at your bank. They would prefer not to stop or close a loan. It is easier to raise the rate nominally versus hiking it up, especially for a customer who consistently pays on time. They do not want the bother of closing loans. They prefer the steady cash flow. Your current lender should do this for you or another hungry bank will.
- Fixed rates: When you have a fixed rate loan, you need to watch market rates when they are dropping below your loan rate. There will be a breaking point where your closing costs on a refinance package will be worth refinancing at a lower interest rate. This will give you a lower monthly payment or maybe if you decide, shorter payoff period. Shop rates and get refinance quotes. You do not have to refinance but you will know your market.
Property Taxes: The property taxes can be included into the loan payment. Most businesses pay their property taxes at yearend separately, but many homeowners have their home property taxes folded into their mortgage payment, giving the bank 1/12 of the estimated property taxes with each monthly bill. When too much or too little has been deducted, either an additional payment is included at yearend when property taxes are due, or, the payment is dropped in the case of too much being deducted through the year.
- Compare similar property values: Compare the property taxes assessed on your house to those of neighbors and properties being sold.
- Question assessed values: Watch the assessed value posted on the internet about your property from the tax assessor’s office for property taxes. Where the assessed value is too high compared to recent sales of properties near your area, protest your tax in the tax assessor’s office.
- Hire a protest firm: If you wish, hire a firm to protest your property taxes annually to get your tax bill lowered. They do this every day so it may be worth it on large expensive properties or portfolios of real estate. The protest firm is paid a percentage of your savings after it is awarded (market value dropped).
