How Lenders Determine Your Mortgage Interest Rate

Determining Your Mortgage Interest RateWith the cost of homes steadily rising, it wouldn’t be surprising if people were looking for a way to save even the smallest amount of money on their home purchase. And between the down payment, closing costs, inspections, PMI, and more, the cost of a home can quickly add up.

Paying interest on your mortgage isn’t avoidable, but you don’t have to feel like you don’t have any control over how much you pay. As you start the homebuying process, you’ll want to consider what factors into the total cost of your loan. The reason being you can improve your chances of saving some cash, especially when it comes to your interest rate.

To ensure you can get the best deal possible, it would be beneficial to understand how mortgage interest works as well as how lenders determine your mortgage interest rate.

How does mortgage interest work?

Mortgage interest, which is a fee charged by a lender for lending money to a borrower, will vary from person to person and lender to lender. Every month when you make your mortgage payment, mortgage interest will account for a portion of that payment. In fact, a majority of the payment is used to pay down interest, while only a small portion is used to pay down the principal balance, or the loan amount.

However, as you continue to make loan payments, and the principal balance decreases, your interest will also decrease. With this change in the amount of interest that is to be paid, more of your payment will go towards the principal balance. With the mortgage interest rate having an impact on the total cost of the loan and your monthly payments, a lower interest rate is better.

What factors affect my mortgage interest rate?

Your lender determines your mortgage interest rate. They do so using a variety of factors that will ultimately help them get a clear picture of your finances and your ability to repay the loan.

Lenders will use seven different factors to determine the mortgage interest rate:

  • Credit score: Number used to confirm a consumer’s creditworthiness.
  • Home location: State of home.
  • Loan type: Conventional, VA, FHA, or other special loan programs.
  • Loan amount: The total cost of the home and closing costs minus the down payment.
  • Loan term: The time borrowers have to repay their loan.
  • Down payment: A percentage of the loan amount paid at closing.
  • Type of interest rate: Fixed interest rate stays the same, while adjustable interest rate changes based on the market.

Using the abovementioned factors, lenders will be able to determine your interest rate. Every lender will offer a range of mortgage interest rates, so before applying, you may be able to confirm the rates offered to get a better idea of what the total cost of your mortgage might be.

For example, if a lender’s rates fall between 3.40% and 9.22%, your rate will be between 3.40% and 9.22%. Using a mortgage calculator, you can calculate the cost of your loan and your monthly payments. Of course, if a lender’s rates are too high, you have the option to shop around and look into other lenders who offer something more affordable for your budget.

Next to buying a car, buying a home is likely one of the largest purchases you will make in your lifetime. You might even buy more than one, but as a first-time homebuyer, you may not be 100% sure how to get the best deal. And considering how much people pay in interest, you want to be sure you are getting the best deal.

Source: creditabsolute.com

There Will Be a 3-Month Waiting Period to Get a Mortgage After Forbearance

Last updated on September 11th, 2020

We’ve finally got some clarity regarding what happens after mortgage forbearance in terms of obtaining a subsequent home loan.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced temporary guidance regarding the matter today.

Waiting Period After Mortgage Forbearance for Fannie and Freddie

  • No wait to buy a home or refinance if you’re in a forbearance plan but continued making payments
  • 3-month waiting period if you didn’t make payments while in a forbearance plan
  • Those who paused payments must make 3 consecutive monthly mortgage payments after forbearance ends to be eligible for a new home loan
  • Only applies to mortgages backed by Fannie Mae or Freddie Mac

While it’s not 100% clear, thanks to ambiguous wording from the FHFA, it appears there will be a three-month waiting period to get a mortgage after forbearance ends, assuming you didn’t make payments during that time.

The key to eligibility is to ensure that you have made three consecutive payments after forbearance comes to an end, via a repayment plan, the payment deferral option, or loan modification if applicable.

Those who just go back to making regular payments via the payment deferral option should only need to make three regular payments to restore eligibility for a mortgage refinance or new home purchase loan.

The semi-confusing part is the release also says borrowers in forbearance plans are eligible to refinance or buy a home, presumably right away, if they are current on their mortgage.

For example, if a homeowner is in a forbearance plan but still making mortgage payments for some reason, possibly because they just wanted the safety net and didn’t actually need the assistance.

FHFA Director Mark Calabria said those “who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized,” allowing them to take advantage of today’s record low mortgage rates.

That makes sense seeing that someone who didn’t actually miss a payment shouldn’t have to wait to get a mortgage.

But there’s still some uncertainty, from a lender’s standpoint, if a forbearance plan is available to the borrower and they later decide to pause payments.

Apparently, about one-third of borrowers in forbearance plans have continued making payments, per FHFA data shared by Calabria during a webinar titled “MBA Live: State of the Industry.”

Regardless, for the majority who are in forbearance plans and actually not making mortgages payments, the wait will be a mere three months, which is a pretty good deal in my opinion.

The FHFA also extended its policy to purchase mortgages in forbearance, which was due to expire on May 31st, 2020.

They will now buy forborne loans with note dates on/before June 30th, 2020 as long as they are delivered by August 31st, 2020 (and only one mortgage payment has been missed).

Getting an FHA Loan After Forbearance

In mid-September 2020, HUD released a mortgagee letter detailing waiting periods for FHA loans post-forbearance.

Similar to Fannie and Freddie, those who entered a forbearance plan but continued to make all their monthly mortgage payments can get a home loan with no wait provided the forbearance plan is terminated prior to or at closing.

Those in forbearance plans who paused payments will be subject to a three-month waiting period once the forbearance plan has been completed. In other words, they must make three monthly payments post-forbearance.

That rule applies to both home purchase loans and rate and term refinances.

For cash out refinances, the borrower must have completed their forbearance plan AND made at least 12 consecutive monthly payments post-forbearance.

A borrower who is still in a mortgage forbearance plan at the time of case number assignment, or has made less than 3 consecutive monthly mortgage payments post-forbearance, is eligible for a Credit Qualifying streamline refinance provided they meet the other streamline loan requirements.

For Non-Credit Qualifying streamline refinances, you must have made three consecutive monthly mortgage payments post-forbearance and meet the other general requirements for a streamline refinance.

What About Mortgage Forbearance Waiting Periods for Other Types of Home Loans?

  • No waiting period guidance yet for USDA loans and VA loans
  • They tend to be more forgiving/flexible than Fannie and Freddie in these situations
  • Might be a similar waiting period or none at all if certain conditions met
  • Keep in mind that lenders may impose their own overlays above and beyond these rules

It’s unclear how other types of home loans will be treated, such USDA loans, VA loans, jumbo loans, and miscellaneous portfolio loans.

My guess is Ginnie Mae-backed loans will get similar or even more favorable treatment, seeing that they’re usually pretty lax.

Back during the mortgage crisis, you could get an FHA loan just one year after foreclosure, short sale, or bankruptcy with extenuating circumstances.

Clearly COVID-19 is an extenuating circumstance for EVERYONE so I couldn’t see them imposing much of a wait if any at all.

With regard to jumbo loans, non-conforming loans, and portfolio loans, your guess is as good as mine.

It will likely vary by bank/lender and you may need to meet other various conditions to show you’re not a delinquency threat.

The other question is will there be lender overlays that go above and beyond this interim rule?

In other words, will certain banks and mortgage lenders require borrowers to be six or 12 months out of forbearance before extending new financing?

You could certainly make the argument, especially if there’s a correlation between mortgage forbearance and delinquency rates.

Read more: Will Forbearance Prevent You from Getting a Mortgage in the Future?

Source: thetruthaboutmortgage.com

Why Joe Biden and Kamala Harris Haven’t Paid Off Their Mortgages

Posted on November 11th, 2020

You’d think presumably wealthy politicians like Joe Biden and Kamala Harris would own their homes free and clear. But that’s not the case, per their 2019 tax returns.

Both individuals disclosed their returns on the JoeBiden.com website, and each paid tens of thousands of dollars in mortgage interest last year.

But why would they pay interest if they had the means to simply pay off the loans, a luxury most other Americans can’t afford to do? The reason is simple.

Mortgage Debt Is the Cheapest Debt Out There

  • Joe and Jill Biden paid $15,796 in home mortgage interest in 2019
  • Kamala Harris and Douglas Emhoff paid $32,041 in home mortgage interest in 2019
  • There’s a good chance both parties could have paid off their mortgages in full
  • But why bother if you can earn a higher rate of return for your money elsewhere?

Why Biden and Harris and so many other rich homeowners choose to carry mortgages as opposed to paying them off has to do with how cheap they are relative to virtually everything else.

Ultimately, it doesn’t get much better than home loan debt, especially with mortgage rates in the 1-2% range at the moment. What other type of loan offers such cheap financing?

This is why I refer to mortgages as good debt, especially since you have the opportunity to write off the interest in many cases.

On top of that, the low rate of interest makes it easy for savvy homeowners to beat the rate of return on their mortgage by investing elsewhere.

Simply put, your mortgage rate is your rate of return if you choose to prepay your home loan ahead of schedule.

Any extra dollars put toward your loan essentially earn whatever your mortgage rate is, so if it’s 2.75%, you’re earning 2.75% if you choose to pay any extra each month or year.

Unfortunately, the lower mortgage rates go, the less it makes sense to prepay the mortgage because you’re earning a lower and lower rate of return.

Interestingly, we often hear feel-good stories in the news about everyday Joes paying off their mortgages in just 5-10 years. Or even less time. But why? What’s the rush exactly?

Getting Rid of the Mortgage Is a Psychological Victory

  • The obsession with paying off the mortgage is a psychological one
  • Often times there are better uses for your money than prepaying your home loan
  • An alternative might be to pay off other high-interest rate debt like credit cards
  • Or to invest any extra funds in the stock market, mutual funds, or a general retirement account

Sure, it’s great not to have to make a monthly mortgage payment, but that doesn’t mean it’s the best move financially to prepay your home loan.

Often, the desire to pay off the mortgage has more to do with human psychology than it does math.

It probably feels good to pay off any debt, especially a large sum of money such as a mortgage.

But as noted, it’s cheap debt and you might be better served putting extra dollars elsewhere.

Apparently, this is what Joe Biden and Kamala Harris do, and Obama did the same based on his old tax returns.

In the past, I reported that Joe Biden had been a refinancing machine, constantly taking advantage of cheaper financing by way of rate and term refinance to save money on his home loans.

One of the richest men in the world, Warren Buffett, has also been a proponent of carrying a mortgage for the same reasons.

You get to lock in an ultra-low mortgage rate for three decades and watch the payment become effectively cheaper over time as inflation erodes the value of the dollar.

It doesn’t get much better than that, especially when you might be able to write off the interest too.

This explains why Joe Biden, Kamala Harris, Warren Buffett, and even Facebook founder Mark Zuckerberg choose to hold mortgages when they can easily pay them off.

Read more: Should I pay off my mortgage early?

(photo: Elvert Barnes)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

4 Mistakes Millennials Make When Buying a House

June 8, 2019 Posted By: growth-rapidly Tag: Buying a house

Many millennials start the home buying process without a real understanding of what it takes be a homeowner.

In fact many of them don’t even know the many upfront costs when buying a house — including coming up with a down payment, moving costs, closing costs, renovating costs, and so many others.

They think that if they have a sizable down payment and a stable job, the hard yards are over. Well, not quite…

Wondering how these mistakes can affect your overall financial plan? Talk to a local financial advisor.

That lack of knowledge can lead them to make costly mistakes, including paying thousands of dollars in loan interests, defaulting on their home loan, or going bankrupt. Here are some of the biggest mistakes millennials make when it comes to buying a house — and what can be done instead.

Check out: 5 Signs You’re Not Ready to Buy a House.

1. Not understanding the importance of a good credit score.

One of the most important things a mortgage lender looks at when deciding to pre-qualify or qualify you for a mortgage loan is your credit score.

Yet, many millennials don’t know the importance of maintaining a good credit score. Lacking that fundamental knowledge could cost them a lot. One is that you will have a hard to get qualified for a loan.

Second, even if a mortgage lender offers you a mortgage loan, you will likely get a high mortgage rate. A high mortgage rate can cost you thousands of dollars in interest – money that you could contribute towards your retirement savings.

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To avoid this mistakes when buying a house, millennials should first figure out their credit scores through a free monitoring service like MyFreeScoreNow. A good credit score is around 730.

Once you have an idea of what your credit score is through your credit report, take steps to improve it. One way to raise your credit score is not to max out your credit limit.

Maxing out your credit cards can hurt your credit score significantly. So keep your credit utilization rate under 30 percent.

Another way to improve your credit score is to pay your bills on time. Payment history accounts for 35% of your overall credit score. So it’s very important to pay your bills promptly.

Check out: How To Raise Your Credit Score to 850.

2. Not understanding how much down payment is enough.

A down payment on a house is the single most important factor when it comes to buying a house. Unless you are so wealthy that you can buy a house with outright cash, you will need to come up with a down payment.

The recommended down payment is 20% of the home purchase price. But many first time home buyers can be qualified for a FHA loan, where the down payment is 3.5%.


Feeling Overwhelmed With Your Finances?, You have options and there are steps you can take yourself. But if you feel you need a bit more guidance, simply speak with a financial advisor. SmartAsset’s free tool matches you with fiduciary advisors in your area in 5 minutes. If you are ready to meet your goals, get started with Smart Asset today.


However, the disadvantage of putting less than 20% is that you will have to pay Private Mortgage Insurance (PMI). A PMI is extra fee added to your monthly mortgage payment.

Another disadvantage is that it will take you longer to pay off your mortgage. And your monthly mortgage payments will be much more.

One way to not have to worry about a PMI is to save for a 20% down payment before starting the home buying process. Saving for a down payment should not be that hard if you have a savings strategy in place.

See: What is a Typical Down Payment on a House?

Taking out a mortgage loan to purchase a house is the most expensive financial decisions you can ever make in your life. So it’s important to have the best mortgage rates possible so you don’t end up paying thousands of dollars in interest over the life of the loan.

Yet, most millennials only speak with one lender when buying a home. That is a big mistake. When you speak with one lender, you don’t know what other mortgage rates are available to you. A good mortgage rate means less interests. So not speaking with multiple lenders is one of the mistakes to avoid when buying a house.

4. Not knowing other upfront costs associated with buying a house

You might think that just because you’ve found a home and you have been approved for a loan, that your hard work is over. Well, not quite. In addition to coming up with a down payment, there are several other upfront costs when buying a house.

There are inspection costs. Before you buy a house, it’s always a good idea to inspect the house for defects. In fact, it is mandatory. Lenders will simply not offer you a loan unless they have seen an inspection report.

There are loan application fees. Some lenders may charge you a fee for applying for a loan. This fee typically covers tings like credit check for your credit score or appraisal.

There are repair costs. Unless your house is perfect from the very first time you occupy it, you will need to do some repair. Depending on the condition of the house, repair or renovating costs can be quite significant.

There are moving costs. Depending on how far you’re moving and/or how much stuff you have, you may be up for some moving costs.

So avoid these mistakes when buying a house, and your home-buying experience should go as smoothly as possible.

10 First Time Home Buyer Mistakes to Avoid

How Much House Can I afford

5 Signs You’re Better Off Renting

7 Signs You’re Ready to Buy a House

How to Save for a House


Not All Mortgage Lenders Are Created Equally

When it comes to getting a mortgage, rates and fees vary. LendingTree allows you to view and compare multiple mortgage rates from multiple mortgage lenders all in one place and at the same time, so you can choose the best rates for your needs. LendingTree makes getting a loan faster, simpler, and better. Get started today >>>

Source: growthrapidly.com

Today’s mortgage rates see highest mark since June 2020 | February 26, 2021 – Fox Business

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.

Check out the mortgage rates for February 26, 2021, which are trending up from yesterday. (iStock)

Based on data compiled by Credible Operations, Inc., NMLS Number 1681276, mortgage rates have risen since yesterday.

  • 30-year fixed mortgage rates: 3.125%, Up from 3.000%, +0.125
  • 20-year fixed mortgage rates: 3.125%, Up from 2.875%, +0.250
  • 15-year fixed mortgage rates: 2.500%, Up from 2.250%, +0.250

Rates last updated on February 26, 2021. These rates are based on the assumptions shown here. Actual rates may vary.

To find the best mortgage rate, start by using Credible, which can show you current mortgage and refinance rates:

Browse rates from multiple lenders so you can make an informed decision about your home loan.

Looking at today’s mortgage refinance rates

Today’s mortgage refinance rates have risen since yesterday, with 30-year fixed mortgages jumping 375 basis points overnight. The average rates for all loan types surpassed 3%, and stopping at 3.083% after holding steady all week. If you’re considering refinancing an existing home, check out what refinance rates look like:

  • 30-year fixed-rate refinance: 3.375%, Up from 3.000%, +0.375
  • 20-year fixed-rate refinance: 3.375%, Up from 3.000%, +0.375
  • 15-year fixed-rate refinance: 2.500%, Up from 2.375%, +0.125

Rates last updated on February 26, 2021. These rates are based on the assumptions shown here. Actual rates may vary.

A site like Credible can be a big help when you’re ready to compare mortgage refinance loans. Credible lets you see prequalified rates for conventional mortgages from multiple lenders all within a few minutes. Visit Credible today to get started.

Current mortgage rates

Mortgage interest rates continue to soar, with the average 30-year fixed mortgage rate up to 3.125%, which surpasses highs not seen since June 2020. Averages rates across all loan types continue to push toward 3%.

Current 30-year mortgage rates

The current interest rate for a 30-year fixed-rate mortgage is 3.125%. This is up from yesterday.

Current 20-year mortgage rates

The current interest rate for a 20-year fixed-rate mortgage is 3.125%. This is up from yesterday.

Current 15-year mortgage rates

The current interest rate for a 15-year fixed-rate mortgage is 2.500%. This is up from yesterday.

You can explore your mortgage options in minutes by visiting Credible to compare current rates from various lenders who offer mortgage refinancing as well as home loans. Check out Credible and get prequalified today, and take a look at today’s refinance rates through the link below.

Rates last updated on February 26, 2021. These rates are based on the assumptions shown here. Actual rates may vary.

How mortgage rates have changed

Today, mortgage rates are up compared to this time last week.

  • 30-year fixed mortgage rates: 3.125%, up from 2.750% last week, +0.375 
  • 20-year fixed mortgage rates: 3.125%, up from 2.750% last week, +0.375
  • 15-year fixed mortgage rates: 2.500%, up from 2.125% last week, +0.375

Rates last updated on February 26, 2021. These rates are based on the assumptions shown here. Actual rates may vary.

If you’re trying to find the right rate for your home mortgage or looking to refinance an existing home, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.

How to get low mortgage rates

Current mortgage and refinance rates are affected by many economic factors, like unemployment numbers and inflation. But your personal financial history will also determine the rates you’re offered.

If you want to get the lowest possible monthly mortgage payment, taking the following steps can help you secure a lower rate on your home loan:

It’s also a good idea to compare rates from different lenders to find the best rate for your financial goals. According to research from Freddie Mac, borrowers can save $1,500 on average over the life of their loan by shopping for just one additional rate quote — and an average of $3,000 by comparing five rate quotes.

Credible can help you compare current rates from multiple mortgage lenders at once in just a few minutes. Are you looking to refinance an existing home? Use Credible’s online tools to compare rates and get prequalified today.

Mortgage interest rates by loan type

Whether you’re a first-time homebuyer shopping for a 30- or 15-year mortgage, or you’re looking to refinance an existing home, Credible can help you find the right mortgage for your financial goals.

Before you fill out your mortgage application, check out these loan rates, which you’ll be able to compare by annual percentage rate (APR) as well as interest rate:

Mortgage refinance:

Home purchase:

Source: foxbusiness.com

6 First Time Home Buying Mistakes I Made When I Bought My First House

Are you thinking about buying a house? Do you want to avoid common home buying mistakes?

I bought my first house when I was only 20 years old. Even though that was a little over 11 years ago, I have looked back many times and wondered how I did it.first time home buying mistakes

first time home buying mistakes

I made so many first time home buyer mistakes!

Of course, I was young and had a lot to learn. But, I definitely could have done more research to avoid many of the home buying mistakes I made, like not comparing interest rates or understanding the total cost of buying a home.

I’m not alone in how I approached buying a house. There are many people who simply do not understand everything that goes into buying a house, and that’s something that can negatively impact your finances and cause stress. 

Over the years, I have received many emails about buying a house in your early 20s or when you’re young. I also get lots of questions from people who have been renting and are thinking about buying their first home.

I thought it would be interesting to look back on the home buying mistakes I made and explain how to avoid the same mistakes I made. Hopefully you can be a better prepared home buyer than I was!

The mistakes first time home buyers make can cost you money and may even lead to regret. Perhaps you’re wondering why you even bought your home!

One thing you may not know about me is that the first house I ever lived in was actually my own. Growing up, we always lived in small apartments and rented. I wanted to have a home of my own – moving so often as a child was tiring.

Buying a house and being a homeowner was a completely new thing for me.

I had never done yard work, had to deal with house maintenance, home repairs, or anything like that.

I was as new as could be when it comes to living in a house!

It was a buyer’s market when we started searching. It was back in 2009, so the housing market was coming down. This meant that a monthly mortgage payment wasn’t too much more than rent at an apartment.

I felt like I was ready to buy my first house, and I needed a place to live.

So, buying a house seemed like a logical decision.

I made many home buying mistakes, like I said. While I made it through everything, my mistakes could easily have led to major financial trouble.

Read on below to learn more about mistakes home buyers make and my first-time home buyer tips.

Related content on home buying mistakes:

Here were some of my home buying mistakes.

 

first-time home buyer mistakes

This was our first house.

I didn’t prepare.

I was only 20, so I didn’t really understand how things worked, even though I thought I did at the time.

I found an online mortgage lender, and back in 2009, that was kind of a new thing. The company ended up doing a bunch of odd things and made a bunch of paperwork mistakes. It almost seemed scammy because online mortgages were so new at the time.

While my realtor was great and a family friend, she recommended a mortgage loan officer to me, and I just used that person.

The loan officer was great and very friendly.

But, I didn’t compare interest rates at all, I didn’t try to raise my credit score before I started looking at homes, and more.

Instead, I should have been paying attention to my credit score and worked to increase it before I started looking at rates. Then, I should have applied with multiple mortgage lenders and found the best interest rate.

Basically, I didn’t prepare.

Had I spent time increasing my credit score and shopping around for better rates, I could have gotten a better interest rate and saved money on mortgage payments.

While a small percentage difference in interest may not sound like much, it makes a big difference in how much you pay each month and how much you pay over the course of your loan.

For example, here’s the difference in two 30-year mortgages on a $200,000 home (this is before annual taxes being added in to the monthly payment):

  • With an interest rate of 3.25% your monthly payment would be $870, and you would pay $313,349 over the course of your loan.
  • With an interest rate of 4% your monthly payment would be $955, and you would pay $343,739.

That’s a difference of $85 a month, and you will have paid $30,000 more once your mortgage is paid off.

Looking back, I would have done more research on the home buying process and the factors that impact interest rates.

One of the easiest things you can do to avoid this mistake is to start paying attention to your credit score. You can receive free credit reports and credit scores, and I recommend reading Everything You Need To Know About How To Build Credit to learn more.

I avoided adding up all of the costs because it was scary.

Okay, so I knew that having a house could/would be expensive, and luckily we were fine, but wow, are there a lot of costs!

I avoided adding them all up for a while because I knew they would be higher than I thought. Eventually I did, and I was right – adding everything all together was a doozy.

We didn’t start adding up these costs until we were farther along in the buying process, and this is one of the home buying mistakes many people make. 

There are lots of people who only think about their mortgage payment, but there are so many more costs associated with buying a home

Before we purchased a home, we should have gone through all of the typical costs of owning a house and compared it to our housing budget. Comparing your current budget to your new homeowner’s budget will tell you whether or not you can actually afford to buy a home.

Here are some of the homeownership costs you want to consider:

  • Gas/propane.  Many homes run on gas in order to have hot water, to use the stove, and so on.
  • Electricity. Generally, the bigger your home then the higher your electricity bill will be.
  • Sewer. On average, your sewer bill may cost around $30 a month from what I’ve seen.
  • Trash. This isn’t super expensive either, but it’s still a cost to include.
  • Water. Water bills can vary widely. I know many who live in areas where the average water bill is a few hundred each month.
  • Property taxes. Property taxes can vary widely from town to town. You may find yourself looking at two similar houses with similar price tags, but the property taxes may differ by thousands of dollars annually. That is a LOT of money. While it may seem small when compared to the actual home purchase price, remember that you have to pay property taxes annually and a difference of just $3,600 a year is $300 a month for life.
  • Homeowners insurance. Homeowners insurance can be cheap in some areas but crazy expensive in others. Don’t forget to look into the cost of earthquake, flood, and hurricane insurance as well as that can add up quickly depending on where you live – not thinking about these was one of the home buying mistakes I made.
  • Maintenance and repairs. Even if your home is brand new, you may have to pay for repairs, which is something that will come up eventually. No matter how old your home is, repair and maintenance costs will eventually come into play.
  • Homeowners association fees. This can also vary widely. You should always see if the house you are interested in is in an HOA because the fees can be high and there may also be rules you don’t like.
  • Home furnishings. Furnishing your home can be done cheaply, but I know some who buy huge homes but can’t afford to put anything in them, such as a table, a bed, and so on. Why own a $500,000 house if you don’t have any furniture?

 

I probably should have spent less on the actual house.

While the house we bought was less than the amount we were pre-approved for, I definitely think that we could have found a house for even less.

We bought at the top of our budget, and this is one home buying mistake that can really get you in trouble.

Thinking back on it, the amount that we were pre-approved for, as young 20 year olds, was pretty insane. I am very glad that we did not buy a house that was that expensive.

It’s not uncommon to be approved for much more than your budget realistically allows for. Just because the bank approves you for a $350,000 mortgage, for example, does not mean you can afford to buy a house at that price.

We bought at the top of our budget thinking that we would get better jobs eventually. While that worked out in our favor since we were each barely making above minimum wage, it was a decision that could have ended quite badly.

 

We were living paycheck to paycheck and didn’t have an emergency fund.

We were young and didn’t have high paying jobs when we bought our house. In fact, we were barely making more than minimum wage at our jobs.

While we never racked up credit card debt, I did accrue student loans and we were living paycheck to paycheck.

Had one major (or even minor) thing happened with our new house, the only option would have been taking on debt. This is not where you want to be if you have just taken out a big mortgage. 

The best way to avoid this first time home buyer mistake is to set some money aside for emergencies before you buy, and to buy a house that fits in your budget. You want to be able to continue saving while making your new monthly home payments.

 

Make sure your home insurance covers what you need.

While I never had to use my home insurance, there were a few things that it did not cover, and I should have at least thought about them beforehand.

One of the biggest coverage issues was flooding. Flooding is a common problem where we lived in Missouri, yet I didn’t realize until a few years after I had already lived in the house that flooding was not covered unless you signed up for an additional policy.

Now, we weren’t in a floodplain – your lender may require you to buy special flood insurance if you live in a floodplain – but basement flooding was still a fairly common issue where we lived. 

Another special insurance consideration are earthquakes. Many normal home insurance policies do not cover earthquakes.

You can avoid this home buying mistake by researching what is the best kind of insurance policy for where you live. Floods and earthquakes aren’t a problem everywhere, but in some places you may want to have that kind of coverage.

 

Have a larger down payment.

We were 20, and we didn’t have a lot of money saved up before we bought our house.

Therefore, we did not put down a 20% down payment. That might sound like a lot, but 20% is the recommended amount to put down if you want to avoid PMI (private mortgage insurance).

A lender charges PMI because putting less than 20% down makes the loan look like a riskier investment for them. PMI protects lenders from borrowers who default on their loans.

PMI is normally around 0.5% to 1% of the mortgage annually, and it’s added to your monthly payment. If you borrowed a $200,000 mortgage, you would likely pay between $1,000 to $2,000 a year until you paid down enough of your mortgage principal to remove PMI.

We put less than 5% down towards our house purchase, and this led to us having PMI.

I don’t remember exactly how much we paid each month for PMI, but looking back, I could have used that money to pay off my student loans faster, save more, and so on.

While having a larger down payment isn’t one of the home buying mistakes I could have easily changed back then, in general, just saving more money instead of frivolously spending it in the beginning would have been a good decision.

Related content: Can You Remove PMI From Your Mortgage?

 

So, what’s going on with the house now?

As many of you know, we sold our house over 5 years ago. We wanted to travel more, and selling our house made more sense than keeping it.

We actually sold it for quite a loss, as the market was further down than when we bought it.

I’m happy that we bought the house – it taught us a lot, gave us responsibility, and gave us a place to live! And, it taught us how to avoid home buying mistakes in the future.

One of the things I haven’t mentioned is what we paid each for our mortgage. Our monthly payments were just under $1,000. 

Where we lived in the midwest is known for being a low cost of living area. I can’t imagine how we would have bought a house in some other parts of the U.S.

But, the low cost of living meant that buying a house at 20 was more doable.

Is it normal to regret buying a house? Is it normal to have buyers remorse after buying a house?

I don’t know what the statistics are on home buyers remorse, but it does happen. Hopefully with the tips before buying a house above, you can avoid that as much as possible.

Also, being realistic when it comes to what to expect when buying a house can help greatly as well.

What home buying mistakes did you make when you purchased your home?

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Source: makingsenseofcents.com

Mistakes I Made When I Bought My First House At The Age of 20

Are you thinking about buying a house? Do you want to avoid common home buying mistakes?

I bought my first house when I was only 20 years old. Even though that was a little over 11 years ago, I have looked back many times and wondered how I did it.first time home buying mistakes

first time home buying mistakes

I made so many first time home buyer mistakes!

Of course, I was young and had a lot to learn. But, I definitely could have done more research to avoid many of the home buying mistakes I made, like not comparing interest rates or understanding the total cost of buying a home.

I’m not alone in how I approached buying a house. There are many people who simply do not understand everything that goes into buying a house, and that’s something that can negatively impact your finances and cause stress. 

Over the years, I have received many emails about buying a house in your early 20s or when you’re young. I also get lots of questions from people who have been renting and are thinking about buying their first home.

I thought it would be interesting to look back on the home buying mistakes I made and explain how to avoid the same mistakes I made. Hopefully you can be a better prepared home buyer than I was!

The mistakes first time home buyers make can cost you money and may even lead to regret. Perhaps you’re wondering why you even bought your home!

One thing you may not know about me is that the first house I ever lived in was actually my own. Growing up, we always lived in small apartments and rented. I wanted to have a home of my own – moving so often as a child was tiring.

Buying a house and being a homeowner was a completely new thing for me.

I had never done yard work, had to deal with house maintenance, home repairs, or anything like that.

I was as new as could be when it comes to living in a house!

It was a buyer’s market when we started searching. It was back in 2009, so the housing market was coming down. This meant that a monthly mortgage payment wasn’t too much more than rent at an apartment.

I felt like I was ready to buy my first house, and I needed a place to live.

So, buying a house seemed like a logical decision.

I made many home buying mistakes, like I said. While I made it through everything, my mistakes could easily have led to major financial trouble.

Read on below to learn more about mistakes home buyers make and my first-time home buyer tips.

Related content on home buying mistakes:

Here were some of my home buying mistakes.

 

first-time home buyer mistakes

This was our first house.

I didn’t prepare.

I was only 20, so I didn’t really understand how things worked, even though I thought I did at the time.

I found an online mortgage lender, and back in 2009, that was kind of a new thing. The company ended up doing a bunch of odd things and made a bunch of paperwork mistakes. It almost seemed scammy because online mortgages were so new at the time.

While my realtor was great and a family friend, she recommended a mortgage loan officer to me, and I just used that person.

The loan officer was great and very friendly.

But, I didn’t compare interest rates at all, I didn’t try to raise my credit score before I started looking at homes, and more.

Instead, I should have been paying attention to my credit score and worked to increase it before I started looking at rates. Then, I should have applied with multiple mortgage lenders and found the best interest rate.

Basically, I didn’t prepare.

Had I spent time increasing my credit score and shopping around for better rates, I could have gotten a better interest rate and saved money on mortgage payments.

While a small percentage difference in interest may not sound like much, it makes a big difference in how much you pay each month and how much you pay over the course of your loan.

For example, here’s the difference in two 30-year mortgages on a $200,000 home (this is before annual taxes being added in to the monthly payment):

  • With an interest rate of 3.25% your monthly payment would be $870, and you would pay $313,349 over the course of your loan.
  • With an interest rate of 4% your monthly payment would be $955, and you would pay $343,739.

That’s a difference of $85 a month, and you will have paid $30,000 more once your mortgage is paid off.

Looking back, I would have done more research on the home buying process and the factors that impact interest rates.

One of the easiest things you can do to avoid this mistake is to start paying attention to your credit score. You can receive free credit reports and credit scores, and I recommend reading Everything You Need To Know About How To Build Credit to learn more.

I avoided adding up all of the costs because it was scary.

Okay, so I knew that having a house could/would be expensive, and luckily we were fine, but wow, are there a lot of costs!

I avoided adding them all up for a while because I knew they would be higher than I thought. Eventually I did, and I was right – adding everything all together was a doozy.

We didn’t start adding up these costs until we were farther along in the buying process, and this is one of the home buying mistakes many people make. 

There are lots of people who only think about their mortgage payment, but there are so many more costs associated with buying a home

Before we purchased a home, we should have gone through all of the typical costs of owning a house and compared it to our housing budget. Comparing your current budget to your new homeowner’s budget will tell you whether or not you can actually afford to buy a home.

Here are some of the homeownership costs you want to consider:

  • Gas/propane.  Many homes run on gas in order to have hot water, to use the stove, and so on.
  • Electricity. Generally, the bigger your home then the higher your electricity bill will be.
  • Sewer. On average, your sewer bill may cost around $30 a month from what I’ve seen.
  • Trash. This isn’t super expensive either, but it’s still a cost to include.
  • Water. Water bills can vary widely. I know many who live in areas where the average water bill is a few hundred each month.
  • Property taxes. Property taxes can vary widely from town to town. You may find yourself looking at two similar houses with similar price tags, but the property taxes may differ by thousands of dollars annually. That is a LOT of money. While it may seem small when compared to the actual home purchase price, remember that you have to pay property taxes annually and a difference of just $3,600 a year is $300 a month for life.
  • Homeowners insurance. Homeowners insurance can be cheap in some areas but crazy expensive in others. Don’t forget to look into the cost of earthquake, flood, and hurricane insurance as well as that can add up quickly depending on where you live – not thinking about these was one of the home buying mistakes I made.
  • Maintenance and repairs. Even if your home is brand new, you may have to pay for repairs, which is something that will come up eventually. No matter how old your home is, repair and maintenance costs will eventually come into play.
  • Homeowners association fees. This can also vary widely. You should always see if the house you are interested in is in an HOA because the fees can be high and there may also be rules you don’t like.
  • Home furnishings. Furnishing your home can be done cheaply, but I know some who buy huge homes but can’t afford to put anything in them, such as a table, a bed, and so on. Why own a $500,000 house if you don’t have any furniture?

 

I probably should have spent less on the actual house.

While the house we bought was less than the amount we were pre-approved for, I definitely think that we could have found a house for even less.

We bought at the top of our budget, and this is one home buying mistake that can really get you in trouble.

Thinking back on it, the amount that we were pre-approved for, as young 20 year olds, was pretty insane. I am very glad that we did not buy a house that was that expensive.

It’s not uncommon to be approved for much more than your budget realistically allows for. Just because the bank approves you for a $350,000 mortgage, for example, does not mean you can afford to buy a house at that price.

We bought at the top of our budget thinking that we would get better jobs eventually. While that worked out in our favor since we were each barely making above minimum wage, it was a decision that could have ended quite badly.

 

We were living paycheck to paycheck and didn’t have an emergency fund.

We were young and didn’t have high paying jobs when we bought our house. In fact, we were barely making more than minimum wage at our jobs.

While we never racked up credit card debt, I did accrue student loans and we were living paycheck to paycheck.

Had one major (or even minor) thing happened with our new house, the only option would have been taking on debt. This is not where you want to be if you have just taken out a big mortgage. 

The best way to avoid this first time home buyer mistake is to set some money aside for emergencies before you buy, and to buy a house that fits in your budget. You want to be able to continue saving while making your new monthly home payments.

 

Make sure your home insurance covers what you need.

While I never had to use my home insurance, there were a few things that it did not cover, and I should have at least thought about them beforehand.

One of the biggest coverage issues was flooding. Flooding is a common problem where we lived in Missouri, yet I didn’t realize until a few years after I had already lived in the house that flooding was not covered unless you signed up for an additional policy.

Now, we weren’t in a floodplain – your lender may require you to buy special flood insurance if you live in a floodplain – but basement flooding was still a fairly common issue where we lived. 

Another special insurance consideration are earthquakes. Many normal home insurance policies do not cover earthquakes.

You can avoid this home buying mistake by researching what is the best kind of insurance policy for where you live. Floods and earthquakes aren’t a problem everywhere, but in some places you may want to have that kind of coverage.

 

Have a larger down payment.

We were 20, and we didn’t have a lot of money saved up before we bought our house.

Therefore, we did not put down a 20% down payment. That might sound like a lot, but 20% is the recommended amount to put down if you want to avoid PMI (private mortgage insurance).

A lender charges PMI because putting less than 20% down makes the loan look like a riskier investment for them. PMI protects lenders from borrowers who default on their loans.

PMI is normally around 0.5% to 1% of the mortgage annually, and it’s added to your monthly payment. If you borrowed a $200,000 mortgage, you would likely pay between $1,000 to $2,000 a year until you paid down enough of your mortgage principal to remove PMI.

We put less than 5% down towards our house purchase, and this led to us having PMI.

I don’t remember exactly how much we paid each month for PMI, but looking back, I could have used that money to pay off my student loans faster, save more, and so on.

While having a larger down payment isn’t one of the home buying mistakes I could have easily changed back then, in general, just saving more money instead of frivolously spending it in the beginning would have been a good decision.

Related content: Can You Remove PMI From Your Mortgage?

 

So, what’s going on with the house now?

As many of you know, we sold our house over 5 years ago. We wanted to travel more, and selling our house made more sense than keeping it.

We actually sold it for quite a loss, as the market was further down than when we bought it.

I’m happy that we bought the house – it taught us a lot, gave us responsibility, and gave us a place to live! And, it taught us how to avoid home buying mistakes in the future.

One of the things I haven’t mentioned is what we paid each for our mortgage. Our monthly payments were just under $1,000. 

Where we lived in the midwest is known for being a low cost of living area. I can’t imagine how we would have bought a house in some other parts of the U.S.

But, the low cost of living meant that buying a house at 20 was more doable.

Is it normal to regret buying a house? Is it normal to have buyers remorse after buying a house?

I don’t know what the statistics are on home buyers remorse, but it does happen. Hopefully with the tips before buying a house above, you can avoid that as much as possible.

Also, being realistic when it comes to what to expect when buying a house can help greatly as well.

What home buying mistakes did you make when you purchased your home?

Related Posts

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Source: makingsenseofcents.com

Forbearance of Foreclosure? How to Keep Your Credit and Homeownership Intact

The following is a guest post by Eric Lindeen, of Anna Buys Houses.

The second quarter of 2020 marked the highest U.S. mortgage delinquency rate (reported as 60-days past due) since 1979. Amidst the chaos of the pandemic, federal and state governments have made efforts to protect against the financial strain U.S. consumers are enduring—including mortgage payment forbearance of foreclosure. 

What Is a Forbearance?

Forbearance is the postponement of mortgage payments, or the lowering of monthly payments for a specified time period; it’s not loan forgiveness. Repayment terms are negotiated between the borrower and lender. Mortgage forbearance is one tool to help protect homeowners from foreclosure due to temporary hardships, such as a job loss, natural disaster, or pandemic. Some homeowners may opt for strategic forbearance, meaning they proactively enter a forbearance agreement just in case they lose their ability to make their mortgage payments.

As of October 25, data from the Mortgage Bankers Association (MBA) reports that approximately 2.9 million U.S. homeowners are currently in forbearance plans. That number represents 5.83% of servicers’ portfolio volume. MBA data also shows that nearly 25% of all homeowners in forbearance plans have continued to make their monthly payment (perhaps an indicator of the use of strategic forbearance).

How Do Forbearance Plans Work?

Mortgage payment forbearance programs have come at a time when many Americans are losing their livelihood and others fear the potential fallout from the health and economic crisis. Not all forbearance plans are created equal. Therefore, it’s critical to understand how different plans are structured to protect your financial health and credit. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act is one measure enacted to provide relief to consumers facing hardships due to the impacts of the coronavirus. One provision of the Act allows mortgage payment forbearance and provides other protections for homeowners with federally or Government Sponsored Enterprise (GSE) backed or funded (FHA, VA, USDA, Fannie Mae, Freddie Mac) mortgage loans. 

If you have a federally or GSE-backed mortgage, no documentation is required to request forbearance, other than an assertion that you are facing a pandemic-related hardship. Borrowers are entitled to an initial forbearance period of up to 180 days. If necessary, an extension of an additional 180 days may be requested. Federally backed mortgages are protected against foreclosure through December 31, 2020. 

Recently, the foreclosure moratorium was extended yet  again to at least March 31, 2021 for GSE-backed loans (Fannie Mae and Freddie Mac). Be sure you understand who owns your loan and the terms of your loan as these deadlines approach. Extensions are likely to continue to help borrowers keep their homes and lenders navigate the constant uncertainty that is 2020.

The CARES Act amended the Fair Credit Reporting Act (FCRA) with a provision that when a lender agrees to forbear an account of a consumer impacted by the pandemic, the consumer complies with the terms of the forbearance. Then, the mortgage issuer must report that account as current to credit reporting agencies.

How Your Credit Factors into Forbearance

On paper, knowing that your credit won’t be affected by forbearance seems like a good deal. There’s an important distinction here. Your loan doesn’t need to be current to qualify for forbearance under the CARES Act. However, any delinquencies on your account prior to entering a forbearance plan will impact your credit report. Make sure that your loan is current, and being reported as current to the credit bureaus, before you agree to a forbearance of foreclosure.

What about Private Mortgages?

Around 30% of single-family mortgages are privately owned. Many private banks and loan servicers have voluntarily implemented relief measures that don’t fall under the same protections of the CARES Act. Terms vary by institution and state of residence. And relief plans may not be structured in the same manner as federally-backed and funded loans. 

For example, borrowers with private loans may be required to pay back all missed payments in a lump sum as soon as the forbearance period ends. Lump sum payments are not required for GSE-backed loans. Additionally, if modifications are made to a privately funded loan, the new terms could impact your credit score depending upon how the lender reports the status of your loan to the credit bureaus.

The good news is that the three major credit bureaus (i.e., Equifax, Experian, and TransUnion) are providing free weekly online credit reports through April 2021. Be sure to check these reports to ensure that the new terms of your loan are being reported as “paying as agreed” and not reported as late. Credit.com also has resources to help check and manage your credit.

It’s also important to understand the terms of your loan. Some homeowners who recently refinanced were asked to sign a form that was quickly described as “new COVID paperwork.” The fine print stated that their new loan was not eligible for forbearance relief measures. 

Get matched with a personal loan that’s right for you today.

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Mortgage payment forbearance is one tool that can protect homeowners from defaulting on their loan, damaging their credit, and worst of all, losing their home to foreclosure. Key takeaways include, knowing who owns your loan, who services your loan, and what type of protections are available to provide relief if the current economic crisis is impacting you or you fear that it might. 

There are proactive steps to protect against foreclosure and determine the right path for your personal situation.

Source: credit.com

Paying More Today Won’t Lower Future Monthly Mortgage Payments

Posted on February 24th, 2021

Just about everyone with a home loan ponders the idea of paying a little extra, whether it’s via biweekly mortgage payments, or just once a year after receiving a sizable bonus or tax refund.

Whatever the method, you should first consider why you’re thinking about paying your mortgage off early as opposed to putting the money elsewhere.

This is a particularly important question to ask in the super-low mortgage rate environment we’ve been enjoying for some time.

Simply put, mortgage borrowing is really cheap, and probably the least expensive debt you’ve got, so prioritizing it over other debt may not make sense.

For example, if you have student loan or credit card debt, it might be more beneficial to pay that off first.

Anyway, assuming you do decide to make extra mortgage payments, whether significantly larger or just a little more than required, your next monthly payment won’t be affected by the previous payment.

You will still owe what you owed the month before, regardless of your principal balance being smaller.

While this might sound unfair, it all has to do with math and the fact that a mortgage is an amortizing loan.

A Mortgage Is an Amortizing Loan with Equal Monthly Payments

  • Most mortgages have a set loan term in which they are paid off in full
  • Fully-amortizing payments consist of a principal and interest portion
  • The monthly payment amount typically doesn’t change unless it’s an ARM
  • But the portion that goes to principal/interest will adjust over time as your loan is paid off

Traditional mortgages are paid off over a certain set time period with regular monthly payments that consist of a principal and interest portion.

This total payment amount does not change (barring an ARM adjustment or negative amortization) regardless of whether you pay more than is due each month.

The only thing that changes over time is the composition of your mortgage payment, with the portion going toward principal increasing over time as the loan balance falls.

As more goes toward principal, less go toward interest – picture an old-fashioned balance scale where one side drops while the other rises.

Let’s take a look at an example to illustrate:

Mortgage amount: $100,000
Mortgage interest rate: 5%
Loan type: 30-year fixed
Monthly payment: $536.82

In this example, your monthly mortgage payment would be $536.82 per month for 360 months.

The very first payment would allocate $416.67 toward interest and the remaining $120.15 would go toward principal.

This right here illustrates how interest on mortgages is front-loaded, with about 78% of the payment going toward interest and doing nothing to pay down the loan balance.

To calculate the interest portion, simply multiply 5% by $100,000, and divide it by 12 (months). The principal portion is the remainder, as noted above.

For the second payment, you need to use an outstanding balance of $99,879.85 to account for the principal amount paid off via payment one.

So to calculate interest for the second payment, you multiply $99,879.85 by 5% and come up with $416.17. This is the interest due and the remainder of the $536.82 payment goes toward principal.

Over time, the interest portion decreases as the outstanding balance decreases, and the amount that goes toward principal increases.

Pay More Each Month and the Payment Composition Will Change

payment composition

  • While paying more than necessary won’t lower the minimum amount due on your next mortgage payment
  • It will change the composition of all future payments thanks to a lower outstanding balance
  • This means you’ll save on interest and reduce your loan term despite owing the same each month
  • In other words paying extra is well-suited for those looking to save money long-term, not to obtain payment relief

If you make some additional payments, the outstanding loan balance will drop prematurely based on the original amortization schedule.

But instead of your monthly mortgage payments decreasing, the composition of your next payment (and the payment after that) becomes more principal-heavy.

In other words, the payment due would still be $536.82 the next month, but more of it would go toward principal (paying down your balance).

And for that reason, less interest would be paid throughout the life of the loan, and the mortgage would be paid off ahead of schedule. These are the two benefits of making larger payments.

The obvious downside is you wouldn’t enjoy lower payments in the future, which could be an issue if money becomes unexpectedly tight, especially seeing that you used it to pay your mortgage down quicker.

Instead, more money is essentially locked up in your home until you either sell the property or refinance and pull equity (cash out refinance).

Recast or Refinance If You Want to Lower Future Payments

  • As noted extra payments alone won’t lower future ones
  • The only way future mortgage payments will drop is if you recast your loan or refinance it
  • Make sure you have money in the bank after making any extra payments
  • The money could be trapped in your home and unavailable for other more pressing needs

If you made additional payments and want subsequent monthly payments to be lower, you have two options to get payment relief.

You can refinance the loan, which would also re-amortize the loan based on a brand new loan term. Of course, if you’re well into a 30-year loan, you’ll reset the clock if you go with another 30-year term.

That’s why it’s recommended to go with a shorter term loan when refinancing such as a 15-year fixed mortgage, which kind of defeats the purpose of lowering monthly payments.

The other option you might have is to request a “loan recast,” where the lender re-amortizes the loan based on the reduced principal balance.

This generally only makes sense if you make a sizable extra payment, something that would really change the payment structure of the loan.

In fact, some banks may only offer a recast it if you make a certain lump sum payment that cuts a certain percentage off the loan. They’ll also charge you a fee to do it in most cases.

So while both a refinance and a recast can lower monthly payments, you have to be careful not to tack on more costs as you attempt to pay your mortgage down faster.

At the end of the day, it can be very worthwhile to make larger payments even if your subsequent payments don’t change, just make sure you have money set aside for a rainy day.

Source: thetruthaboutmortgage.com