Few monthly mortgage payments will remain the same
during the life of a mortgage. There will be adjustments
in interest if you have an adjustable-rate mortgage, or fluctuations
in property taxes and insurance premiums for both adjustable and
fixed-rate mortgages.
Most mortgage servicers and lenders will perform an
escrow analysis at the end of the year. They will look for any tax
increases, premium increases or other fee hikes that will make the
increase of your monthly mortgage payment necessary. You should set
aside a little extra money in November and December just in case
your mortgage payments increase in February.
ARM borrowers
If you have an ARM, you are at the highest risk for a
payment change. When market interest rates increase, your monthly
ARM payments have the potential to skyrocket.
If interest rates are beginning to climb, you can
prepare for higher payments by setting aside the extra $50 or $75
you saved by choosing an ARM over a fixed-rate mortgage. The more
time you have before a rate adjustment, the more you can save to
cushion the blow.
You may want to prepay on your mortgage to lessen the
impact of an increased interest rate. With an ARM, prepayments can
reduce your monthly mortgage payments, which are recalculated each
year when rates are adjusted. As long as you make the prepayment at
least 45 days before the adjustment date, the lender will use the
new balance to figure the next year's payment. This can seriously
soften the impact of consecutive rate increases.
Fixed-rate borrowers
If you have a fixed-rate mortgage, you will enjoy a
fairly stable monthly payment amount. But if changes occur, you may
be stuck with them. For example, you can prepay all you want on a
fixed-rate mortgage to reduce your principal balance, loan terms and
overall cost of the mortgage, but your monthly payment amount will
never decrease.
The one way to decrease your monthly mortgage payment
is to eliminate the need to pay for private mortgage insurance. Once
you have met the lender's requirements to cancel PMI, you can save
up to $100 each month by getting rid of it.
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