A Mortgage and Bank Trick You Should Avoid at All Costs
Once youve purchased your home, you will begin to get correspondence from your lender about a Mortgage Reduction Program, in which you can cut years off your mortgage, without adding money to your payment. This is another trick bankers have to get you to give them your payment sooner, so they can hold it in escrow and make more money off of you.
The program arranges for you to make your mortgage payment bi-weekly. In other words, you cut your monthly payment in half and make it every two weeks. Basically, all the bank is doing is collecting an extra mortgage payment, over the course of a year and adding it to your principal loan amount. This cuts five to seven years off your 30-year mortgage term. Heres the secret they dont want you to know.
First, you can do this without them. Simply add to your principal loan amount on any given month, when you can afford to do so. Youll learn more about this, in the section on ARMs. Second, the banks charge you a hefty setup fee, usually $250 to $350, as well as a monthly processing fee. You dont need to pay this, ever! Again, you simply add money to the principal loan, in the same check you use to pay your monthly mortgage. In fact, your mortgage invoice provides a box that specifically says, Additional Principal. If you want to cut seven, 10 or even 15 years off your loan, just ask your mortgage professional how much you need to add each month or each year to meet that term.
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