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Making the Most of Today’s Minimum Mortgage Requirements

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.


The past several years house values have increased in many parts of the country. Median incomes in the United States have also risen the past four years in a row. If your income is heading higher, or you’re noticing houses are selling for more in your neighborhood, you may be thinking about buying a home, or accessing some of the equity in the house you currently own. The biggest factor that will drive your interest rate and monthly payment will be your credit history.

Buying or refinancing with bad credit can be challenging, but there are ways to overcome those credit issues if you understand how lenders look at all the parts of your loan application when determining your ability to repay a mortgage loan.

What lenders look at if you are buying a home

  • Down payment: This is the amount required for you to “put down” in order to buy the home. The more you put down, the lower your mortgage payment is. Jump ahead for more details on down payments.
  • Debt-to-income ratio (DTI): There are two ratios mortgage lenders look at. Your front-end ratio is your monthly payment on your home divided by your gross income. Your back-end ratio takes all your debt — such as student loans, car loans, credit cards and other monthly debt, as well as your new mortgage payment — and divides it by your gross income. The back-end ratio is the one that has the biggest effect on your loan approval. Jump ahead for more details on DTI requirements.
  • Credit score: In order to determine your interest rate, loan costs and monthly payment, most mortgage lenders will access credit scores from three credit bureaus, and in most cases take the middle of the three scores. The most common credit bureaus used for mortgage credit scoring are Experian, Equifax and TransUnion. Jump ahead for more details on credit score requirements.
  • Type of property: Condominiums, co-ops, manufactured homes and multi-unit properties have different lending requirements. It’s important to let your lender know if you are buying this type of property, as it will affect your ability to qualify, your interest rate, how much down payment is required and the DTI requirement. In some cases, the property itself will have to go through a separate approval process to make sure it meets the lender’s “project” guidelines.

What lenders look at if you are refinancing a mortgage

  • Credit score: Much like a purchase loan, your credit score will determine your interest rate and how much you can borrow compared to the value of your home. Jump ahead for more details on credit score requirements.
  • How much equity you have: This is determined by the difference between your current mortgage and the value an appraiser gives your home at the time of your refinance. For example, if you have a $250,000 mortgage and your home appraises for $300,000, you have $50,000 in equity. How much equity you can borrow depends on your credit score, the loan program you are eligible for and your debt-to-income ratios. Jump ahead for more details on borrowing limits.
  • Debt-to-income ratio: Lenders look at the same ratios as they do for purchases. If you are taking equity out of your house with a cash-out refinance, lenders may have stricter requirements for your max DTI to make sure you aren’t borrowing too much compared to what your current monthly payment is, especially if your credit scores are near the minimums. Jump ahead for more details on DTI.
  • Type of property: Condominiums, co-ops, manufactured homes and multi-unit properties will not allow you to take out as much cash. Property type may affect your ability to qualify because of stricter requirements for approval, higher down payment requirements and, often, higher interest rates.

What is the minimum down payment to get a purchase mortgage?

Many people mistakenly believe that the changes to the mortgage market made it necessary to save up 20% to buy a home. Lenders have been gradually easing guidelines, and there are a number of programs that allow for a little as 0% down payment.

  • Conventional: Most conventional mortgage programs require at least a 5% down payment. This can be from your own savings, a gift from a relative or a combination of the two.
  • FHA: The HUD-insured FHA mortgage requires 3.5% down and allows for credit scores down to 580. It also allows for down payments from gifts.
  • VA: Qualified veterans can purchase a home with 0% down with verification that their service meets the requirements for the VA home loan guarantee. If you are a veteran, you can determine your eligibility for VA financing by clicking on the certificate of eligibility for a home loan link.
  • USDA: This rural loan program allows for as little as 0% down financing on eligible properties. You can use the online USDA property eligibility tool to find qualified homes.
  • HomeReady®/HomePossible®: Both of these conventional loan programs allow for down payments as low as 3%.
  • Down payment assistance: Government grants, municipal bond programs and income-based housing assistance may be available depending on your income and where you are buying. It’s best to contact your local government housing or nonprofit housing agencies to find out what might be available.

What is the maximum I can borrow for a cash-out refinance mortgage?

  • Conventional: Conventional mortgage programs allow you to borrow up to 80% of the value of your home and don’t restrict what you use the cash out for.
  • FHA: The FHA mortgage is a government loan program that allows you to access up to 85% of the value of your home and does not restrict how you use the cash out.
  • VA: Qualified military veterans can borrow up to 100% of the value of their home, and there are no restrictions on the use of the cash out.
  • USDA: The USDA loan program does allow cash out up to 100% of the value of the house, but only for repair or remodeling of the home. Since the funds have to be provided to a contractor, this is considered more of a construction loan than a cash-out refinance. All funds must be paid to contractors for the repair or construction work.

What is the minimum income needed to get a mortgage?

While most people assume their credit is the most important factor in getting approved for a loan, debt-to-income ratio has the biggest effect on a lender’s decision to make a loan. Lenders look at the total amount of debt plus your mortgage payment divided by your gross income very seriously to make sure you will be able to repay your mortgage.

  • Conventional: The standard qualified mortgage guideline is 43% DTI (back end), although many lenders approve borrowers with a 50% back-end DTI with additional compensating factors (there’s more on that in the next section).
  • FHA: The back-end ratio guideline for FHA is 43%, although loans are approved over 50% with additional compensating factors.
  • VA: VA does not have a maximum qualifying debt ratio, but rather a residual income test borrowers must meet in order to qualify for a loan. This calculation is based on a veteran’s family size and varies by location. The calculation starts with after-tax income and subtracts all debt and a maintenance-and-utility calculation based on the size of the home. If the veteran meets the requirement, the loan can be approved, even with very high debt ratios.
  • USDA: Front-end/back-end DTI maximums are capped at 29%/41%, with exceptions to 32%/44% with compensating factors.
  • HomeReady/HomePossible: The guideline maximum back-end DTI is 50% based on automated underwriting guidelines. The HomeReady program has income limits, but the HomePossible program does not. Be sure to check with your loan officer for the income limits in your area.
  • Down payment assistance: The DTI requirements vary by state and program, so it’s best to contact your local nonprofit or government housing agency to find out what they are in your area.
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What is the minimum credit score to get a mortgage?

Many current and aspiring homeowners are surprised to learn that they can get approved for mortgage financing with scores as low as 580 and very little down payment. They are equally as surprised by how much more the monthly payment and closing costs are as a result of their low credit scores.

Refinancing with bad credit costs a lot more in the short and long run — the more you borrow compared to the value of your home, the higher the interest rate is going to be, and the more you’ll pay over the life of the loan. It’s very important to do a cost-benefit analysis with your mortgage loan officer to discuss the financial goals you are trying to accomplish with a refinance, especially if you have bad credit.

Below is a graph showing the effect of credit scores on interest rates for consumers who received loan offers through the LendingTree marketplace in October 2018. (LendingTree is MagnifyMoney’s parent company.)

FICO RangeAverage APRAverage Down PaymentAverage Loan AmountAverage LTVLifetime Interest Paid*

All Loans




































*Lifetime interest paid is calculated based on the overall average loan amount to enable comparison.

Even though borrowers with scores as low as 620 received mortgage offers, the amount of interest paid went up $23,954 for the life of the loan versus borrowers with scores of at least 680.

The minimum credit score requirements for purchases and refinances are the same. Some lenders may require higher minimum credit scores if they don’t specialize in a certain kind of mortgage program (like an FHA or USDA loan), so be sure to shop around if you are being told that your scores are too low for a particular type of mortgage loan:

  • Conventional: 620 is the standard minimum for Fannie Mae and Freddie Mac conventional mortgage loans.
  • FHA: FHA loans will require a 580 FICO score for most purchase and refinance loans. Exceptions can be made for scores as low as 500, but these will require higher down payments for purchase loans, and a higher amount of equity for refinances.
  • VA: Unlike the other programs listed here, the VA does not have an actual published minimum credit score requirement. Most lenders will require a 620 FICO score, although like FHA, exceptions can be made for borrowers with higher down payments or more equity.
  • USDA: Most lenders will require a 640 score, although exceptions can be made down to 580.
  • HomeReady/HomePossible: This program requires a 620 score minimum, but some lenders may require higher score limits.
  • Down payment assistance: Most down payment assistance programs will require at least a 640 credit score, but you’ll want to check, as the guidelines for these programs change frequently.

Ways to overcome credit score weakness: compensating factors

If you’ve been told that you have a low credit score, take heart: Lenders look at more than just your credit score when making mortgage loans. There are a number of things that you can provide to compensate for a weak credit history, and many lenders are willing to take a second look at a loan application they initially rejected if you can provide proof of some of these items.

Keep in mind that lenders are looking at what they call “layers of risk.” That means if you only have one layer — bad credit — but have other good layers, like a stable income and savings, you may still be able to secure approval.

Lower debt-to-income ratios and long-term job stability: If you are able to borrow below the maximum debt ratios, and have at least two years in your current job, you will have a better chance of getting approved, even if your credit scores are near the minimums. This might mean you have to buy a little bit less of a home, so keep that in mind if you are starting the house-hunting process knowing you have some credit problems.

Extra reserves and savings: Extra savings, in addition to other retirement savings, can help offset a bad credit history. These are commonly referred to as “payment reserves” and show the lender that if you had to, you could use these funds to pay your mortgage for a certain time period after closing. Be sure to provide all of the assets you have — that cash-value life insurance policy your grandma got you when you were 18 may come in handy, and any 401(k)s can be used toward a reserve requirement (they don’t have to be liquidated).

Having your own down payment versus a gift of down payment assistance: If you can save your own down payment, it will help show you have already made a financial commitment toward the house.

Minimizing credit use 60 to 90 days before you apply for a mortgage: Hold off on buying that brand new car, and limit your credit use to small purchases on credit cards for 60 to 90 days before you apply for a mortgage.

Credit repair: There are a variety of credit repair companies that can help you, but it may take three to six months, and there is usually a monthly cost involved. Some lenders may suggest rapid rescoring — especially in cases where you may have paid down a balance recently, but it hasn’t reflected on your credit report yet. This allows for corrections to your credit card balances that are reflected within five to seven days, instead of the normal 30 to 60 days it may take a credit repair company to correct the information. As with any financial product, be sure to shop around.

Are there other options for refinancing or buying with bad credit?

If you aren’t able to get a mortgage using the compensating factors outlined here, there are lenders that are beginning to offer programs referred to as “non-QM,” ”non-Dodd Frank” or “alternative” loans.

They allow for borrowers who have had major credit events like recent foreclosures or bankruptcies to borrow money at much higher rates. In most cases the down payment requirement is at least 10%, but usually up to 30% for very low credit scores. For refinances, you’ll be capped at much lower maximum loan amounts, which means less cash back to you.

Be sure to discuss an “exit” strategy with your loan officer if you decide to get this type of loan, so that you can be in a more traditional program with a refinance or pay the entire loan off within a couple of years.

Be sure to get second, and third, opinions

There are many different lenders offering a variety of programs to overcome credit challenges.
Before you apply, compare mortgage offers online so you can see what your payment will look like based on your current credit score.

Whatever your situation, be sure to explain all the details to your mortgage professional, and be prepared to provide supporting documents. If you can show that you understand what caused the credit issues and provide proof of the other good things going on with your income and assets, a lender may be willing to consider your refinance or purchase mortgage application for approval.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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Should You Save for Retirement or Pay Down Your Mortgage?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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On the list of financial priorities, which comes first — paying off your mortgage or saving for retirement? The answer isn’t simple. On one hand, owning a home with no mortgage attached to it provides long term security knowing you’ll have a place to live with no monthly payment except property taxes and insurance. However, you’ll also need income to live on if you plan to retire, and how much you save now will have a big impact on your quality of retirement life.

We’ll discuss the pros and cons of whether you should save for retirement or pay down your mortgage, or maybe a combination of both.

Pros of paying down your mortgage vs. saving for retirement

The faster you pay your mortgage off, the sooner you own the home outright. However, there are other benefits you’ll realize if you take extra measures to pay your loan balance off faster.

You could save thousands in long-term interest charges

Most homeowners take out a 30-year mortgage to keep their monthly payments as low as possible. The price for that affordable payment is a big bill for interest charged over the 360 payments you’ll make if you’re in your “forever” home.

For example, a 30-year fixed $200,000 loan at 4.375% comes with a lifetime interest charge of $159,485.39. That’s if you never pay a penny more than your fixed mortgage payment for that 30-year period. Using additional funds to pay down your mortgage faster can significantly reduce this.

Even one extra payment a year results in $27,216.79 in interest savings on the loan we mentioned above. An added bonus is that you’ll be able to throw your mortgage-free party four years and five months sooner.

You’ll build equity much faster

Thanks to a beautiful thing called amortization, lenders make sure the majority of your monthly mortgage payment goes toward interest rather than principal in the beginning of your loan term. Because of that, it’s difficult to make a real dent in your loan principal for many years. You can, however, counteract this by making additional payments on your mortgage and telling the lender to specifically put those payments toward your principal balance instead of interest.

Not only do you pay less interest over the long haul with this strategy, but you build the amount of equity you have in your home much faster. And to homeowners, equity is gold — you’re closer to owning your home outright, and equity can also be a resource if you need funds for a home improvement project or another big expense.

You can access that equity as your financial needs change by doing a cash-out refinance or by taking out a home equity loan or home equity line of credit (HEL or HELOC).

You won’t lose your home if values drop

When you contribute extra money into a retirement account, there is always the risk that you’ll lose some or all of the money you invested. When you contribute money to paying off your mortgage, even if the values drop, you still have the security of a place to live, and are increasing the equity in the home, no matter how much it’s ultimately worth.

Making extra payments ensures you’ll eventually have a debt-free asset that provides shelter to you and your family, regardless of what happens to the housing market in your neighborhood.

Cons of paying down your mortgage vs. saving for retirement

There are some cases where paying down your mortgage faster might actually hurt you financially. Before adding extra principal to your mortgage payments, you’ll want to make sure you aren’t doing damage to your financial outlook with an extra contribution toward your mortgage payoff.

You might end up paying more in taxes

The higher interest payments you make during the early years of your mortgage can act as a tax benefit, so paying the balance down faster could actually result in you owning more in federal taxes. If you are in a higher tax bracket in the early (first 10 years) of your mortgage repayment schedule, it may make sense to focus extra funds on retirement savings, and let your mortgage interest deduction work for you. Of course, everyone’s tax situation is different, so you’ll have to decide (with help from an accountant ideally) if it makes sense to itemize your taxes in order to claim mortgage interest payments as a deduction.

You won’t get to enjoy the return on your paydown dollars until you sell

The only real benchmark for figuring out the value of paying down your mortgage is to look at how much equity you’re gaining over time. However, the equity doesn’t become a tangible profit until you actually sell your home. And the costs of a sale can take a big bite out of your equity because sellers usually pay the real estate agent fees.

Home equity is harder to access

The only way to access the equity you’ve built up is to borrow against it, or sell your home. Borrowing against equity often requires proof of income, assets and credit to confirm you meet the approval requirements for each equity loan option. If you fall on hard financial times due to a job loss, or are unable to pay your bills and your credit scores drop substantially, you may not be able to access your equity.

Pros of saving for retirement vs. paying down your mortgage

Depending on your financial situation and savings habits, it may be better to add extra funds monthly to your retirement account than to pay down your mortgage. Here are a few reasons why.

You may earn a higher return on dollars invested in retirement funds

The growth rate for a stock portfolio has consistently returned more than housing price returns. The average return in the benchmark S&P stock fund is 6.595% for funds invested from the beginning of 1900 to present, while home values have increased just 0.1% per year after accounting for inflation during that same time period.

Assuming your portfolio at least earns 7%, if you consistently invest your money into a balanced investment portfolio, you can expect to double your money every 10 years. There aren’t many housing markets that can promise that kind of growth.

Retirement funds are generally easier to access than home equity

Retirement funds often give you a variety of options for each access, with no income or credit verification requirements, and only sufficient proof of enough funds in your account to pay it back over time. For example, a 401k loan through the company you work for will just require you to have enough vested to support the loan request, and sufficient funds left over to pay it off over a reasonable time.

Just be cautious about making a 401k withdrawal, which is treated totally differently than a loan. You aren’t expected to pay it back like you would a 401k loan, but you could get hit with taxes and penalties.

Cons of saving for retirement vs. paying down your mortgage

You’ll need to weather the ups and downs of the market

Most people who have invested money in the stock market or tracked the performance of their 401k over decades have stories about periods when the value of those investments dropped substantially. While the 7% return on investment is a reliable long term indicator how much your retirement fund might earn, the path to that return is hardly linear.

For example, if you were considering retirement between 1999 and 2002, you may have had to delay those plans when the S & P plummeted over 23% in value in 2002. If you look at each 10-year period since the 1930s, every decade has been characterized by periods of ups and downs.

Calculating the benefit of paying down your mortgage vs. saving for retirement

If you’re torn as to what to do with that extra cash or windfall, let’s look at an example of someone who has an extra $200 to put into either their nest egg or their mortgage each month for the next 30 years.

For this scenario, we’re going to assume their retirement account earns an average 7% rate of return and that their mortgage loan balance is $200,000.

Here’s how much they’d save:

Savings From Paying $200 per Month Down on Your Mortgage
Years PaidMortgage Interest SavingsExtra Equity in HomeTotal Interest Savings and Equity Built Up
10 years$6,040$30,039$36,079
20 years$28,529$76,529$105,058
22 years 6 months$50,745$200,000$250,745

One thing you may notice about the mortgage savings chart — it includes how much extra equity you’re building. Often only the mortgage interest savings is cited when people look at how much you save with extra payments, but that ignores the fact that you’re building equity in your home much faster as well. So not only do you save over $50,000 in interest with your extra contribution, you replenish $150,000 of equity that was used up by your mortgage balance.

As you can see, adding that extra $200 to their mortgage principal each month saved them about $200,000 in the long haul — but the real savings don’t stop there.

By adding an extra $200 to their mortgage payment each month, this borrower turned their 30-year loan into a 22-and-a-half year loan and became mortgage debt-free seven years faster.

That means, in addition to saving $50,000 in interest savings and gaining $200,000 of equity, they also no longer have a mortgage payment. That frees up $998.57 per month that they can now use as discretionary income. That’s an extra $89,871 they could potentially save over that 7.5 year period.

When you add that to the $250,745.41 they saved on mortgage interest and earned in home equity, they’re looking at a total savings of $340,616.

That gives the mortgage paydown a $54,000 net positive edge over saving that extra $200 for retirement, as you can see in the table below.

Savings From Contributing $200 per Month to a Retirement Fund
Years PaidRetirement Balance
10 years$34,404
20 years$102,081
30 years$235,212

The one caveat for this retirement calculation is we assumed the saver was starting at a $0 investment balance. If they already had a healthy balance in their nest egg, they might actually come out in better shape than paying down their mortgage.

There are clearly benefits to each option, and you should consider running your own calculations with your real numbers to get the best answer for yourself.

Paying down your mortgage and saving for retirement at the same time

There’s a fair case to be made for both paying down your mortgage and saving more for retirement, but why choose? If you’re somewhat on track with your retirement savings goals, and like the idea of having your mortgage paid off quicker, you could allocate a certain amount to each.

Pick a number you feel comfortable paying to your principal every month, and then to your 401k, and put it on autopilot for a year. Any time your income increases, or you get bonuses, divide up the amount between principal pay down and retirement additions.

Let’s look at what happens if you evenly divide up your $200 per month between investing your retirement and paying down your mortgage. We’ll use the same $200,000 loan at 4.375% referenced above, and look at the lifetime results.

Savings From Paying $100 Down on Your Mortgage Until Paid Off
Years PaidInterest SavingsExtra Home EquityTotal Interest Savings and Equity Built Up
10 years$3,020$15,020$18,040
20 years$14,265$38,265$52,350
25 years$30,534$200,000$230,534
Savings From Contributing $100 to a Retirement Fund for 30 Years
Years PaidRetirement Balance
10 years$17,202
20 years$51,401
30 years$117,607

Balancing the $100 investment in both strategies still yields a six-figure retirement balance after 30 decades, a debt-free house after 26 years, and shaves off $30,000 in mortgage interest expense. If you don’t like putting all your eggs into one financial basket, this may balance the risks and rewards of each option.

Final thoughts

Looking at the short term and the long term may provide you with the best framework for making a good decision about how to spend dollars on retirement versus extra mortgage payments. Be wary of any financial professional that tells you one path is absolutely better than another.

Having a stable source of affordable shelter is equally as important as having enough income to live when you retire, so a balanced approach to paying down your mortgage and savings for retirement may help you accomplish both goals.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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Life Events, Mortgage

What Is Mortgage Amortization?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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One of the biggest advantages of homeownership versus renting is each mortgage payment gradually pays off your mortgage and builds equity in your home. The difference between your home’s value and the balance of your loan is home equity, and your equity grows with each payment because of mortgage amortization.

Understanding mortgage amortization can help you set financial goals to pay off your home faster or evaluate whether you should refinance.

What is mortgage amortization?

Mortgage amortization is the process of paying off your loan balance in equal installments over a set period. The interest you pay is based on the balance of your loan (your principal). When you begin your payment schedule, you pay much more interest than principal.

As time goes on, you eventually pay more principal than interest — until your loan is paid off.

How mortgage amortization works

Understanding mortgage amortization starts with how monthly mortgage payments are applied each month to the principal and interest owed on your mortgage. There are two calculations that occur every month.

The first involves how much interest you’ll need to pay. This is based on the amount you borrowed when you took out your loan. It is adjusted each month as your balance drops from the payments you make.

The second calculation is how much principal you are paying. It is based on the interest rate you locked in and agreed to repay over a set period (the most popular being 30 years).

If you’re a math whiz, here’s how the formula looks before you start inputting numbers.

Fortunately, mortgage calculators do all the heavy mathematical lifting for you. The graphic below shows the difference between the first year and 15th year of principal and interest payments on a 30-year fixed loan of $200,000 at a rate of 4.375%.

For the first year, the amount of interest that is paid is more than double the principal, slowly dropping as the principal balance drops. However, by the 15th year, principal payments outpace interest, and you start building equity at a much more rapid pace.

How understanding mortgage amortization can help financially

An important aspect of mortgage amortization is that you can change the total amount of interest you pay — or how fast you pay down the balance — by making extra payments over the life of the loan or refinancing to a lower rate or term. You aren’t obligated to follow the 30-year schedule laid out in your amortization schedule.

Here are some financial objectives, using LendingTree mortgage calculators, that you can accomplish with mortgage amortization. (Note that MagnifyMoney is owned by LendingTree.)

Lower rate can save thousands in interest

If mortgage rates have dropped since you purchased your home, you might consider refinancing. Some financial advisors may recommend refinancing only if you can save 1% on your rate. However, this may not be good advice if you plan on staying in your home for a long time. The example below shows the monthly savings from 5% to 4.5% on a $200,000, 30-year fixed loan, assuming you closed on your current loan in January 2019.

Assuming you took out the mortgage in January 2019 at 5%, refinancing to a rate of 4.5% only saves $69 a month. However, over 30 years, the total savings is $68,364 in interest. If you’re living in your forever home, that half-percent savings adds up significantly.

Extra payment can help build equity, pay off loan faster

The amount of interest you pay every month on a loan is a direct result of your loan balance. If you reduce your loan balance with even one extra lump-sum payment in a given month, you’ll reduce the long-term interest. The graphic below shows how much you’d save by paying an extra $50 a month on a $200,000 30-year fixed loan with an interest rate of 4.375%.

Amortization schedule tells when PMI will drop off

If you weren’t able to make a 20% down payment when you purchased your home, you may be paying mortgage insurance. Mortgage insurance protects a lender against losses if you default, and private mortgage insurance (PMI) is the most common type.

PMI automatically drops off once your total loan divided by your property’s value (also known as your loan-to-value ratio, or LTV) reaches 78%. You can multiply the price you paid for your home by 0.78 to determine where your loan balance would need to be for PMI to be canceled.

Find the balance on your amortization schedule and you’ll know when your monthly payment will drop as a result of the PMI cancellation.

Pinpoint when adjustable-rate-mortgage payment will rise

Adjustable-rate mortgages (ARMs) are a great tool to save money for a set period as long as you have a strategy to refinance or sell the home before the initial fixed period ends. However, sometimes life happens and you end up staying in a home longer than expected.

Knowing when and how much your payments could potentially increase, as well as how much extra interest you’ll be paying if the rate does increase, can help you weigh whether you really want to take a risk on an ARM loan.

The bottom line

Mortgage amortization may be a topic that you don’t talk about much before you get a mortgage, but it’s certainly worth exploring more once you become a homeowner.

The benefits of understanding how extra payments or a lower rate can save you money — both in the short term and over the life of your loan — will help you take advantage of opportunities to pay off your loan faster, save on interest charges and build equity in your home.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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