Q & A: Should You Pay Off Your Mortgage?

Q & A: Should You Pay Off Your Mortgage?

Residential News » Q & A with Dottie Herman | By Dottie Herman | June 12, 2014 8:19 AM ET

Are there different mortgages and loan options that work best in different parts of the country? Or are all loans standard across the board?
There are certain loans that are only available in certain parts of the country.  These mostly apply to  rural areas, or first time homebuyer loans tied to specific programs through states or municipalities.  These can be great resources depending on where someone is buying.  The other factor that comes into play is when dealing with larger mortgage amounts.  Currently, the government has set the maximum loan amount for loans they will purchase through Fannie Mae and Freddie Mac at $417,000.  However, there are higher cost areas around the country where those loan amounts can go as high as $625,500, before requiring a jumbo mortgage.  That can be important due to different guidelines in the jumbo world.  Beyond that, the available loan products between fixed rate and adjustable products are generally the same.
How would I go about paying off my mortgage? If there is a prepayment penalty how much will I have to pay? I had a 30-year fixed and I would like to pay it off 7 years early.
There should be no penalty in this case.  There may still be some loans out there that carry a prepayment penalty, but any of those penalties generally take place within the first 3 years  of the mortgage.  If you are 20-plus years into your mortgage, you should be fine to pay it off.  What you need to do is call your servicing provider and request a payoff statement.  This is very important, because if you just pay the principal that shows on your bill, you will still get a bill next month for the remaining interest.  The payoff statement will advise exactly what you need to pay, and by what date, in order to pay off the mortgage.
My wife and I are retired and we want to purchase our retirement home. Will our social security or retirement program be considered as income when applying for a mortgage?
It is important to be aware that, as long you can document the income required to qualify for a mortgage, you should get the mortgage.  Retirement income and retired persons make up a huge sector of the country.  Retirement income can certainly be used to qualify for a mortgage.  There are some parameters that come into play, like demonstrating the income will continue for at least 3 years, and that receipt of the income has started.  That said, it is usable to qualify for any and all mortgage products.
Would co-signing a loan for someone else hurt my ability to get a mortgage myself? Our children are buying a home and I was going to co-sign for them, but my wife and I want to purchase a second summer home.
Co-signing on a loan will most likely have an effect on your ability to qualify, at least for a while.  Understand that when you co-sign for a loan, you are obligated on that loan the same as the people you are trying to help out.  Therefore, when you look to get your next piece of credit, loan, car, etc, that mortgage (as well as the taxes and insurance) will be considered part of your overall debt load.  Now, if you have the income to qualify for what you are looking to purchase in addition to the loan you've co-signed, then you should not have an issue.  There are a number of outlets out there that will allow you to discount the mortgage payment, provided the co-signed parties (your children) have made 12 consecutive and timely, payments on the mortgage.
What is the difference between private mortgage insurance and homeowners insurance?
Great question, and one that arises quite often.  These are, importantly, 2 different things that cover 2 different parties.  Homeowner's insurance is an insurance policy that covers the homeowner (you, and the bank if you have a mortgage) for damage to the home which can occur in many different ways.  This is important, to all parties, because there needs to be coverage to repair or rebuild the house if something bad were to occur.  This is required on all homes with a mortgage, and should be carried on all homes and properties in general due to the cost repairs could carry.  Private Mortgage Insurance is a different ballgame.  Private Mortgage Insurance, or PMI, covers your bank against your possible default on the mortgage.  PMI has been in place for a very long time when banks decided that they needed coverage from a third party if a purchaser is putting down less than 20% on the home they are buying.  This is a policy that you, as buyer, pays for and it lasts a minimum of 1-2 years, after which you must have over 20% equity in the home to remove it.  The policies for dropping PMI vary based on whether you pay down the mortgage, or the property goes up in value.

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