Korene's Blog

Every month, you receive a mortgage statement that reminds you to make your regular payment against your loan, but did you realize that it can serve as a strategic financial tool?

It's true. Whether you receive your statement via regular postal mail, or get your statement online, there are various pieces of information on it that can serve as useful intelligence for better managing your home financing, and help you make well-informed decisions about your loan.

Let's take a look at four important pieces of information found on your statement each month:

1. Taxes.
As tax season approaches, you'll want to review your property tax write-offs, but also use your statement to check that you aren't paying too much. Many people have their property taxes paid via an escrow account attached to their home loan. The yearly property tax is put aside in the account and paid out per your local county assessor's tax collection.

If you pay your property taxes through such an escrow, the year's property tax total will be divided by 12 and bundled into your monthly mortgage payment. If your local real estate market has shifted, the figure being set aside for your property tax escrow could have shifted, as well. If the property tax fees on your payment stay the same while your home's value changes, it might be time to have your home's value reassessed.*

That said, there can be limitations placed on how much the assessors can adjust the value of your property each month, so make sure you familiarize yourself with your local regulations.

2. Amortization.
When you make a payment against your home loan each month, you pay the same amount, but what that money goes toward changes over time. In your loan you have the principal amount, which is the amount you borrowed to finance the purchase of your home, and you have interest, which is the fee you are paying for borrowing that money.

When you first begin paying your loan, your payment goes predominately toward interest, but over time your monthly payment shifts increasingly toward principal. This process is amortization, and your statement shows how your loan is amortizing each month.

If you want to try to pay down your loan more quickly in order to gain additional equity in your loan, you can pay a little extra each month, or make an additional payment each year. Make sure to note on your payments that you wish these extra payments to be applied toward principal, and watch your progress on your statement.

3. Homeowner's insurance.
Like your property taxes, many homeowners pay their homeowner's insurance in monthly installments that are bundled into their loan payment. If you do this, make sure to monitor your loan statement to see if this amount increases or decreases, which would obviously reflect changes in your insurance rates.

Also, taking a moment to examine the amount you are paying provides you with an opportunity to mull over whether or not you need to alter your policy in any way.

4. Private mortgage insurance.
Borrowers are generally required to pay for private mortgage insurance (PMI) if their down payment is less than 20 percent of the sales price of their home. This means that the loan-to-value (LTV) ratio is more than 80 percent. Essentially, PMI is designed to protect the lender in cases where the borrower defaults on the loan.

In most cases when your current loan's LTV falls to 78 percent or below, you no longer need to pay for PMI. So, if you pay PMI, watching the principal on your loan each month can help you keep track of when you may be able to cancel your PMI, which can save you a fair amount of money (which you could consider putting toward the principal, in fact).

Remember, your mortgage statement is more than just a reminder to make your payment — it's a useful tool. If you'd like to learn more about how to strategically leverage the information on your loan statement, or if you have any other home financing questions, please contact me using the information on this email.

*Neither Korene Clopine-Seaman nor WJB are a tax advisory firm. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions and regulations.