My Mortgage Hardly Moved: What Gives?

If you have a mortgage, you may be wondering why your balance isn't shrinking as much as you expected. There are several reasons why this might be the case. Firstly, it's important to understand that in the beginning, you owe more interest because your loan balance is high. This means that most of your monthly payment is applied to the interest, with the remainder going towards paying off the principal. Over time, as you pay down the principal, you owe less interest each month, and more of your monthly payment goes towards the principal. Additionally, the type of mortgage you have may also be a factor, as interest-only mortgages involve paying only the interest each month, with the principal balance remaining unchanged. Late payments can also cause your balance to increase, as a larger portion of your payment will go towards interest. Making additional or larger payments can help you pay off your debt more quickly, but it's important to consider your financial situation and any prepayment penalties or fees that may apply.

You have an interest-only mortgage

If you have an interest-only mortgage, your monthly payments are only repaying the interest on what you've borrowed. This means that the original amount you borrowed (the capital) doesn't go down, and you'll need to pay this remaining balance in full at the end of the mortgage term. This is usually done as a lump sum.

Interest-only mortgages have certain criteria that must be met. For example, NatWest requires that you earn £75,000 a year, or have a combined joint income of £100,000, and that you can borrow up to 75% of the value of the property.

Before agreeing to lend money on an interest-only basis, mortgage lenders will want to see that you have an approved repayment plan in place. Acceptable repayment plans vary from lender to lender but may include ISAs and stock market investments. It's important to know that you'll be able to repay the capital at the end of the term. You can switch to a repayment mortgage, but this will increase your monthly payments.

You can also make overpayments on your interest-only mortgage. An overpayment is an extra amount you choose to pay on top of your monthly payment. Any amount will bring down your balance and reduce the amount of interest you'll be charged.

You're paying late fees

Late fees can be a significant reason why your mortgage hardly went down. Late fees can be charged only in the amount authorised by the mortgage documents you signed, and state law may also limit the amount charged. These late fees can add up, and the longer you wait to address the issue, the worse it will be. Late fees are usually charged 10-15 days after a missed payment, and the fee is generally between 4% and 5% of the total overdue balance.

If you are facing financial hardship, it is important to contact your lender as soon as possible. Many lenders have an online form to fill out, and they may be able to help you work out alternative arrangements, such as a payment plan or refinance. You can also set up a financial safety net from which to draw funds as needed. A mortgage forbearance is an option that allows you to temporarily pause or lower your mortgage payments for a set time period. During this time, interest on the mortgage continues to accrue, and at the end of the forbearance period, you will be required to repay the missed or reduced payments.

If you are experiencing financial hardship, it is important to be proactive and reach out to your lender to discuss your options. You may still be able to get back on track by making one payment, but if you don’t, the problem will only get worse. You will likely receive information from the U.S. Department of Housing and Urban Development, offering resources for hardship help. It is important not to ignore these resources.

Property taxes have increased

Property taxes are a common reason for an increase in monthly mortgage payments. If you have an escrow account to pay for property taxes or homeowners insurance premiums, your monthly mortgage payment will fluctuate in accordance with any changes in your taxes or premiums. This is because your escrow account is the account from which your lender makes your property tax and homeowners insurance payments. Therefore, if your property taxes increase, you will experience an escrow shortage, meaning there is not enough money in the escrow account to cover the cost of your property taxes.

Escrow shortages can be dealt with in a couple of ways. One option is to pay off the amount of the shortage in one lump sum. Alternatively, you can spread the shortage out over the next year by increasing your monthly mortgage payment. It is important to stay on top of your escrow payments to avoid surprise changes in your mortgage.

To understand the reason for changes in your monthly mortgage payments, it is recommended that you check your monthly mortgage statement for the itemized charges. If you are still unsure, you can contact your mortgage servicer for clarification.

You have an adjustable-rate mortgage

If you have an adjustable-rate mortgage, it is likely that your monthly mortgage payment will fluctuate over the life of the loan. This is because the interest rate changes after a certain number of years. This can be a disadvantage as it may result in an increase in your monthly mortgage payment.

The amount of interest you pay depends on your mortgage rate. In the earlier stages of your loan, the majority of your mortgage payment will go towards interest. The proportion of interest to principal changes over the life of the mortgage. You can calculate the amortization schedule using the formula: Total Monthly Payment – [Outstanding Loan Balance x (Interest Rate / 12 Months)].

If you have an interest-only mortgage, your payments will go entirely towards interest for a certain period of time, with none going towards the principal. This can reduce your upfront payment but will result in more interest over the life of the loan. You will only start paying off the principal balance in a lump sum after a certain period.

To reduce the total interest on your loan, you can make larger principal payments. This can be done by making a single lump-sum payment, known as a prepayment, or by adding extra money to your regular mortgage payment. However, you should ensure that your lender does not charge any prepayment penalties or fees.

You have an escrow account

If you have an escrow account, your monthly mortgage payment may fluctuate over the life of the loan. An escrow account is used to pay for property taxes or homeowners insurance premiums. If your monthly mortgage payment includes the amount you have to pay into your escrow account, then your payment will also go up or down if your taxes or premiums change. For example, if your property taxes increase, your mortgage payment will also increase. Similarly, if the cost of your homeowners insurance rises, your mortgage payment will also rise. This is known as an escrow shortage, which means there is not enough money in the escrow account to cover the cost of your property taxes or homeowners insurance.

Escrow shortages can be addressed in a few ways. One option is to pay off the shortage in a lump sum. Alternatively, you can spread the shortage over the next year by increasing your monthly mortgage payments. It is important to stay on top of your escrow payments to avoid unexpected changes in your mortgage. Keep track of the direction your escrow account is trending, so you can plan and make adjustments if necessary.

In addition to escrow accounts, there are other factors that can cause your monthly mortgage payments to increase. One factor is private mortgage insurance (PMI), which is often required when the down payment on a conventional loan is less than 20%. PMI increases your monthly payment, but it can be cancelled once you reach 20% equity in the home, resulting in a lower monthly payment. Another factor is adjustable-rate mortgages (ARMs), where the interest rate changes after a certain number of years, leading to an increase in monthly payments.

Frequently asked questions