Money & Policy

Smart Ways to Manage Your Mortgage

Tips for mortgage management in good times and bad

For many Americans who have a mortgage, their house is their primary investment.

Just as a home requires routine inspection and maintenance, so does a home mortgage.  Here are ways to manage a mortgage and protect your investment in good times and bad.

For Anyone With a Mortgage

  • Stick to a system for making your mortgage payments on time. Failing to keep current with your payments can be costly in terms of late fees and lower credit scores, which could translate into higher costs when you go to borrow money or purchase insurance. The easiest solution may be to set up an automatic payment plan, in which you give your mortgage lender the authority to deduct your monthly payment from your bank account on a specific day of the month. Or, you can use your bank's online bill pay services to automatically forward routine payments to your mortgage lender. Either way, you can rest assured your mortgage payment will be made on time without you having to remember to do something.
  • Save receipts, save money on taxes. You may qualify for tax deductions for certain home improvements, such as energy-efficient windows and appliances, or various costs associated with a home sale, a mortgage refinancing or converting a primary home into an investment property.
  • Build a rainy-day fund. The idea is to have savings you can tap, if necessary, to make as many as six mortgage payments, plus your property tax payments, when times are tough.

If You're Struggling to Pay Your Mortgage

  • At the first sign of trouble, ask your lender for help. "If you find yourself about to fall behind on your mortgage payment, perhaps the most important thing you can do is to talk to your lender, when there's still time to turn things around with your lender's help," stressed Glenn Gimble, an FDIC Senior Policy Analyst. "Your mortgage lender has as much interest as you do in finding an early solution because a troubled loan presents significant regulatory and financial concerns for the lender." In addition to arranging for debt counseling to help get you back on course, your lender may offer one of several solutions to support a payment recovery plan. They include: temporarily reducing your monthly payments to cover only interest; deferring payments altogether and adding the unpaid amounts to the loan balance; increasing the length of the loan to lower the amount of the monthly payment; reducing the loan's interest rate; and perhaps even reducing the balance owed on the loan.
  • Guard against loan modification scams. For guidance, see the FDIC's Foreclosure Prevention Toolkit and the foreclosure resources from NeighborWorks America linked below.

If Paying Your Mortgage Isn't a Problem

Consider paying off your loan faster. While you may be able to lower your total borrowing cost by refinancing your mortgage at a lower interest rate or switching to a shorter term (for example, from a 30-year to a 15-year mortgage), refinancing can be tougher to do in a "down" real estate market. However, you have other ways to save money on your existing mortgage, without refinancing.

"Ask your lender about simple ways to pay off your mortgage faster," said Luke Brown, the FDIC's Associate Director for policy involving bank compliance with consumer regulations. "By adding a little more money to your monthly payment or sending all or part of your payment in sooner than you're scheduled to, you can repay your loan faster and cut your total interest costs by thousands of dollars over the life of the loan."

Voluntary options for gradually accelerating the payoff of your loan may include increasing your payment each month or sending an additional (13th) mortgage payment each year instead of 12. "Be sure to note that the extra payment is to be applied toward principal," added Gimble. "And, if you're willing to commit to a faster payoff, you can even ask your lender if it offers a bi-weekly or other payment program that would accelerate repayment of your loan, preferably with no fee."

FDIC Foreclosure Prevention Toolkit
Neighborworks America: Foreclosure resources

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