Mastering the Philosophy Regarding Note and Structured Settlement Discounts

Make extra payments — Extra payments go directly toward the loan’s principal. In fact, you can reduce your mortgage by almost 10 years simply by making one additional mortgage payment each year. This means that the actual principal of the loan is knocked down by that extra amount you pay, rather than having the bulk of your mortgage payments paying interest. Biweekly payments – Just as making an extra payment will shorten the life of your loan, so will shifting your payment schedule to biweekly as opposed to monthly. Try out this calculator to see how much money extra payments can save.

These points are paid either when the loan is approved or at closing. You can also deduct those points from your federal income tax. Some lenders will let you add the cost of the points to your mortgage, or you may have the option of paying for them up front. Buying points can save a lot of money in interest payments over the life of the loan, so investigate it when you’re shopping around.

Interest – The money the lender charges you for the loan. Taxes – Money to pay your property taxes is often put into an escrow account, a third-party entity that holds accumulated property taxes until they’re due. It’s a percentage of the total amount of money you’re borrowing. If you own less than 20 percent of the equity in your home, you may also have to buy private mortgage insurance, which we’ll talk more about later. Insurance – Most mortgages require the purchase of hazard insurance to protect against losses from fire, storms, theft, floods and other potential catastrophes.

Getting a mortgage is a lot harder than it used to be. If a lender had to wait 30 years to receive full payment on its mortgage loans, it wouldn’t have enough liquidity to make loans to other borrowers. Why is that? We’ll examine two lenders and what led to the housing crisis on the next page. They cash in your mortgage by selling it on the secondary investment market. Contrary to what you may think, mortgage lenders don’t make their money on interest. The largest purchasers of mortgages on the secondary market are two government-sponsored enterprises (GSEs): the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).