Strategies To Manage Mortgage Debt And Reduce Stress

A mortgage balance is the amount you borrow with your mortgage, also known as the principal. It is the core amount of the loan that must be returned to the lender. Each month, part of your monthly payment goes towards paying off the principal and part pays interest on the loan. Interest is what the lender charges for lending you money. The rate at which your mortgage balance falls will not remain constant. In the early years, your payments will primarily be interest, and in the later years, the payments will be mostly principal. This means that over time, more of your monthly payment goes towards paying down the principal. There are several ways to deal with remaining payments on an old mortgage, including porting your mortgage, which means taking your existing mortgage and switching it over to a different property.

Characteristics and Values Table for Carrying a Mortgage Balance

Mortgage balance calculators

To use a mortgage balance calculator, you will need to input specific information, such as the original mortgage principal, annual interest rate, term years, and the monthly payment. You will also need to select one of the options for calculating the number of mortgage payments made. It is important to note that these calculators only work with fixed-rate mortgages where the terms remain constant throughout the loan term.

In addition to online mortgage balance calculators, there are other ways to find your mortgage balance. Many lenders offer the ability to keep track of your mortgage online through your online account. Mortgage companies also typically send out mortgage statements annually, which detail the mortgage balance, the number of payments made, and the interest charged. If you need your mortgage balance sooner, you can contact the mortgage holder, but they may charge a fee for providing this information.

It is important to understand the difference between your mortgage balance and your mortgage payoff amount. Your mortgage balance is the amount owed at a particular moment in time during the mortgage loan term. The payoff amount, on the other hand, will be higher than your mortgage balance due to additional fees required by the lender to close out the mortgage. Additionally, while your mortgage balance will decrease over time as you make payments, the rate at which it falls will not remain constant. In the early years of your loan, your payments will primarily consist of interest, while in the later years, your payments will mostly go towards the principal.

Principal and interest payments

The principal is the amount of money you borrow from a lender and have to pay back. Interest is what the lender charges for lending you the money. The interest rate on a mortgage has a direct impact on the size of a mortgage payment: higher interest rates mean higher mortgage payments.

In the early years of a mortgage, monthly payments will be primarily interest, with only a small part of the payment going towards the principal. This is because the loan balance is still high. Over time, as you pay down the principal, you will owe less interest each month. This means that more of your monthly payment will go towards paying down the principal. In the later years of a mortgage, the payments will be mostly principal.

The principal and interest payment on a mortgage is usually the main component of the total monthly payment. The total monthly payment often includes additional costs, such as homeowners insurance, taxes, and possibly mortgage insurance. Two types of insurance coverage may be included in a mortgage payment: property insurance and PMI (private mortgage insurance). PMI is mandatory for people who buy a home with a down payment of less than 20% of the cost.

With a typical fixed-rate loan, the combined principal and interest payment stays the same over the life of the loan, but the amounts that go towards the principal and interest will change. For example, if you have a $100,000 mortgage with an interest rate of 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55 ($500 interest + $99.55 principal).

Mortgage assumptions

To understand how mortgage assumptions work, let's consider an example. Suppose a seller purchased a home for $400,000 three years ago and took out a mortgage for $350,000. Over those three years, they have paid down the principal by $25,000, and the home's value has increased by $30,000. This means the sales price is now $430,000. In this case, the outstanding mortgage balance is $325,000 ($350,000 - $25,000). For the buyer to assume this mortgage, they would need to cover the difference between the outstanding mortgage balance and the home's purchase price, known as the assumption gap. In this case, the assumption gap is $95,000 ($430,000 - $325,000), which the buyer would need to pay.

It's important to note that not all mortgages are assumable. Government-backed loans are the most common types of mortgages that allow assumptions. However, even within these loan types, there may be specific eligibility criteria, such as minimum credit score requirements. Additionally, the mortgage lender will need to approve the full transfer of liability from the seller to the buyer, which includes credit and income requirements.

While mortgage assumptions can offer benefits to both buyers and sellers, there are also some drawbacks and risks. For buyers, the assumed mortgage may not cover the agreed-upon purchase price, and they will be responsible for making up the difference. Additionally, it may be challenging to find sellers willing to take on the additional risk of transferring their mortgage during the closing sale. For sellers, if the lender does not approve the buyer's application for assumption, the purchase contract could be terminated, leading to the hassle of re-listing the property and finding a new buyer.

Overall, mortgage assumptions provide an alternative option for homebuyers and sellers, but it is relatively uncommon due to the potential risks and limitations involved.

Porting your mortgage

To port your mortgage, you will need to apply for a Decision in Principle (DIP) and a mortgage adviser will help you decide. You can find out if your mortgage rate is portable by checking your original Mortgage Offer letter. If you need to borrow more than the amount on your existing mortgage, you can port your existing mortgage product to all or part of the mortgage balance. However, for the outstanding amount, the ported interest rate will not apply, and you will need to choose a new mortgage product to cover it.

There are different types of porting depending on your borrowing needs for your new property. For example, if you are moving to a cheaper property, you may not need to borrow as much money, and your new mortgage might not be as high. In this case, you may face paying an early repayment charge on the amount of borrowing you don't port to your new home. On the other hand, if you are buying a new property but not selling your existing one, you may be able to get a second mortgage and port your rate, although you may have to pay a higher rate of Stamp Duty.

Before committing to porting your mortgage, it is important to be aware that you will be tied to one lender, so you will have little choice when it comes to interest rates. These may not be competitive, and you could end up paying a higher rate of interest.

Tracking your mortgage balance

Understanding your Mortgage Statement:

Your monthly or annual mortgage statement is a valuable tool for tracking your mortgage balance. Lenders are required by law to provide these statements, which detail the current balance owed, interest charges, interest rate changes, and a breakdown of current and past payments. It's important to review these statements to spot any errors and ensure you're paying off your loan as expected.

Utilize Online Tools and Calculators:

Several online tools and calculators can help you track your mortgage balance. For instance, Quicken offers a built-in mortgage tracker that automatically updates your remaining balance each month. You can also use PocketSmith's "Track Balance Changes" feature to keep a record of any balance changes without the need for individual transaction data. Additionally, online calculators, such as the Mortgage Balance Calculator, can help you estimate your remaining mortgage balance by inputting details like the original mortgage amount, annual interest rate, and monthly payment amount.

Contact your Mortgage Company:

If you want to know your exact mortgage balance, you can simply call your mortgage company and ask for this information. Alternatively, you can create an online account on their website to access your balance anytime.

Keep a Record of Payments:

Maintain a record of your monthly payments to understand how they impact your mortgage balance. You can use spreadsheets like Google Sheets or Excel to manually track your payments and balance. This method allows you to add monthly reminders to ensure timely payments.

Separate Principal and Interest:

It's important to understand the difference between principal and interest in your mortgage payments. The principal is the amount that reduces your loan balance, while interest is the cost of borrowing money. In the early years of your loan, most of your payments will go towards interest, but over time, the majority will shift towards the principal.

By following these steps and staying diligent, you can effectively track your mortgage balance and make more informed financial choices.

Frequently asked questions