5 After Mortgage Don’ts That Can Save You Money

Buying your first home can make you feel like you’re on top of the world. This feeling is even made more wonderful if you know that you got a good deal on the house, plus you were able to find the best mortgage rate in your state. However, the home buying process doesn’t stop until the loan is fully paid. Here are some “after mortgage don’ts” that you have to be aware of to keep your finances still in check:

1. Don’t run up your Credit Cards – You look around at your beautiful new home, and suddenly you see beautiful furniture, added interiors, and a lovely baby grand piano that would just go perfectly in the living room. You can’t wait to make your visions a reality, the only thing stopping you is the money. So you eagerly take out your credit cards and start charging for things you don’t really need at the moment. Running up your credit cards on home furnishings is one common reason why new homeowners amass a bigger credit card debt than usual. It’s just so tempting to beautify the home. But really, it’s all about discipline. You’ll be thankful you didn’t swipe that card when your first mortgage payment has to be made.

2. Don’t Make Late Payments – Sometimes paying electric bills or phone bills a little late may be acceptable, but think differently when it comes to your mortgage. After all, this is one of the largest expenses you can have every month and you wouldn’t want to end up spending your money on other things.

3. Don’t Slack Off On Work – Having just made the biggest purchase in your life, you may feel the urge to pat yourself on the back and relax. If you work 40 hours per week, keep on doing so. Any lack in income may cause you to default on payment, and you wouldn’t want that to happen.

4. Don’t Get New Credit Cards – The principle here is to keep your debt to equity ratio just about the same as the day you signed those papers. Before you even made the decision to buy the house, you may have already calculated that you can afford it. Don’t run the risk of getting deeper into debt by taking on a new credit card that you don’t really need.

5. Don’t Stop Communicating – You may think that since you’ve already gotten your loan and everything is signed that you no longer need to keep in touch with your loan officer. The thing is, keeping in touch will keep you informed of the latest news and happenings and anything you need to be aware of.

Remember, you will only triumph over your mortgage once you’ve paid off everything. It’s not enough to get a good mortgage rate. You must also have the discipline to make those payments and pay everything off either on or before time.

What is APR and How is APR Calculated?

What is APR?When you hear mortgage ads, apply for a mortgage, see a mortgage rate advertised, you will always see the APR right next to the interest rate.  Why is that, and what is the APR?

APR stands for Annual Percentage Rate.  The APR is a calculation that determines what your interest rate would be if you removed the fees from your loan.  The higher the fees the further your APR will be away from your actual interest rate.  The lower the fees the closer your rate and APR will be.

The Annual Percentage Rate is more a measurement of Fees than it is rate.

TIL or the Truth in Lending Law requires that the APR must be displayed with any advertised rate. This is so companies cannot advertise extremely low rates and then tack on high amounts of fees you would then be required to pay to get that rate.

Go ahead and look.  You will never see an add or hear a radio commercial for a mortgage rate without also getting the APR.  Just like you will never see someone in a television commercial actually drinking beer (or any alcohol for that matter), they cannot show the consumption of alcohol.  I guess that is a different article for a different blog though.  Back to APR.

How is APR Calculated?

APR is calculated by first determining the payment of your loan then removing certain fees like points, application fee, closing cost, processing fee, title fee, etc, from the total loan amount and recalculating a new rate from the remaining balance and original payment.

Here is an example.

Let’s say your loan looks like this

  • $100,000 Loan Size
  • 4% Rate
  • 30 year term

In this scenario your mortgage payment would be $477.42.

The closing costs included in the $100,000 were $1,500.

APR would be determined by first removing the fees from the loan size.

  • 100,000 – 1,500 = $98,500

Now calculate a new rate (the APR) using

  • $98,500 Loan Size
  • $477.42 payment
  • 30 year term

The rate calculated here is 4.1257% which would be your APR.

So the whole scenario would be

  • Loan Size: $100,000
  • 30 Year Term
  • $477.42 payment
  • 4% rate with a 4.126% APR

This is how you can see the APR is more a measurement of fees than it is rate.

You can use this information to help determine what advertised loans are better than others.  If you see a 3.5% rate with a 4.5% APR compared to a 4% rate with a 4.2% apr you know which loan is going to be much cheaper and probably the better deal.  Even though option one may have had a lower rate.

Check out our other mortgage help information or mortgage news.