6 Rules to Having a Successful Mortgage Pay-off

Owning your own home is a dream for the most part, and when it becomes a reality, you have to follow rules in order for it to be successful. Success means, paying your loan off, managing your bills and loan together and not having to foreclose or file bankruptcy from miss-managing your finances. Follow the rules to having a successful mortgage pay-off and become a home owner without having to live in constant worry.

Basic Mortgage Information

A mortgage is basically a loan that you receive from a lending institution to finance the purchase of your new home. You will get an interest rate along with a certain amount of payments over a period of time. Most people have to get a loan because they don't have hundreds of thousands of dollars lying under their beds, or at the bank for that matter. Although there are some people who have saved or is in the process of saving that amount of money, a large percentage of people can't.

Before applying for a mortgage, make sure you meet the right criteria to be approved. Some banks would like you to have a certain credit score, and also have an assured way to pay the loan back. For instance, if you just got laid off from your job and don't know when you will return to work, it may not be a good idea to apply for a loan. Even if you have the very good credit score, there are other factors that can play a part.

Know Your PITH and the Costs of Your New Mortgage

Your Principal, Interest, Taxes, and Heating or PITH is what your monthly payment (interest & principal), your taxes, and an estimate of your heating amount costs are totaled to determine PITH. In addition, less than 32% is where you need to be with your gross monthly income in order to be able to afford your housing costs.

You're good on PITH; now check your debts such as student loans, credit cards, car loan payments, etc. You should make sure that your debts are less than 40% of your monthly gross income. Here you'll calculate your debts against your income.

Mortgage Pay-Off

Now that you're approved, make sure that you’re in a position to pay off this loan. Try to get the lowest interest rate you can qualify for and pick a time-period that you know will be the best for you. For example, if you want to take 10 or 15 years to re-pay your loan, and you know you can, do it; or if you want to take your time with 30 years to pay back with the option of paying more to the principal, then go this way. Get the best amortization period for you.

What about Interest Rate?

Figure out the best interest rate for you that you will qualify for. You can get a fixed or variable rate, and in today's market the rates vary from 4% to 7%—less or more depending on where you get it from. Getting a fixed interest price is where the interest rate will stay and with variability, it's able to change.

If you have unanswered questions about getting a new mortgage, make sure you speak with a financial advisor or broker to help you answer any of your questions. This will be one of the biggest decisions you make in your life and knowing all the facts will help get you there.