adjustable rate mortgage payments?

Question

i just purchased a home with an adjustable rate mortgage and am starting to make payments and have several options...is it better to add more to the principal or escrow as opposed to just paying the interest only payment..for instance my payment is $1000.00 and i usually but not always have some extra let's say $200 extra to put on the house payment...i have the choice to put the extra on the principal or escrow? which is the best

Answer 1

it depends on what your plan is? are you going to stay in the home for a long time? is the home in an area that is appreciating quickly?
the only way to pay down the balance is to pay principal, this way your home builds equity, you also build equity if your home appreciates (gains value either by improving it, or by the nature of your area'a market).

what you should know is that adjustable rate mortgages should not be relied upon for the long term. if you are staying in that house for a long time you should really consider a fixed rate refi

Answer 2

Some people just don't understand real estate financing or terms.

For those who told you previously not to put in escrow, the lending institution may require escrow.

Escrow is when you pay part of your taxes and insurance with your monthly loan payments. That extra money is put in ESCROW until it is used to pay the insurance and taxes.

Now, it is cheaper in the long run to pay off a loan ASAP, though it can be hard on the finances if they are tight.

Yahoo has a business calculator on their finance page here, http://finance.yahoo.com/personal-finance

You can play with the terms of the loan.

Now, let me tell you a big secret and a way to take years off of your loan.

Normally you make 12 monthly payments a year. Usually people divide a month into 4 weeks, but this is inaccurate.

Go to your lending institution and open an account. You will have to ask them what kind would work best for what you want to do.

Instruct the bank to take 1/4 payment every Friday, or Monday if your payments are direct deposit. Sometimes, even if they are direct deposit, they don't hit your account till Friday afternoon.

What this does is cut your carrying costs, i.e. interest, as you are only carrying part of the principal the whole month, and you will be making over 13 payments in a year.

The only thing you have to do is be sure, the money is in the account, and the rest is automatic.

It works fantastically.

Good Luck

Answer 3

Pay the mortgage off as quickly as possible!!! I don't have any idea WHY you would put into escrow? What is the purpose of that?

There are two ways to be "financially independent." 1) have so much money you don't know what to do with it all (in 20 years of practice, we have never seen this type of person). 2) have a low overhead so you don't owe anybody anything. That means you want to pay off the mortgage!

Sure, you don't have a mortgage interest deduction on your taxes. So what. YOU own your home - you can use the money normally going to a mortgage on something YOU want.

Answer 4

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Answer 5

Take the $200 and invest it in something at an equal or higher interest rate than you are paying on your mortgage. You get a tax break on your interest on the mortgage so equal rates pay you more than you pay. By using the compound interest in your favor you come out way ahead at the end. Remember the bank's use your money to make money. Why shouldn't you do the same. Don't give them more, give as little as possible, you deserve to make the money. What would you rather do - Work to have money or let your money work for you?

Answer 6

Always put money to the principle because as the principle decreased so does the interest so in the long run you are putting more money towards payoff. The interest is based off the principle so the lower the principle the less interest you are paying.