[Tina Johnson]

Transparency in home insurance is essential. The monthly premium represents the ongoing cost, while the deductible constitutes the out-of-pocket expense incurred when filing a claim. Both factors are critical when evaluating a home’s affordability.

Presenting wind and hail deductibles as dollar amounts enhances clarity. For instance, a 2% wind deductible on a $400,000 home obligates the owner to pay $8,000 out of pocket before insurance coverage applies. This amount may represent a substantial expense for prospective buyers.

An effective mortgage affordability calculator differentiates the purchase price from the insured replacement cost, displays multiple deductible options, and enables side-by-side comparison of insurer quotes. Additionally, it should clarify that premiums and coverage are subject to change following underwriting or property inspection.

Comprehensive housing affordability extends beyond principal, interest, taxes, and insurance by also accounting for the financial risks that homeowners may encounter. Providing buyers with this information prior to closing enables informed decision-making and helps prevent unexpected expenses.

[Tina Johnson]

You may hold more than one VA loan at the same time, subject to specific regulations.

Key considerations:

• There is no set limit on the number of VA loans you may hold concurrently, provided you qualify.
• The main limitation is your available VA entitlement. The VA guarantees only part of each loan. Once entitlement is used, you typically must restore it before obtaining another loan with full entitlement.

Entitlement overview:

• In 2026, most veterans with full entitlement can finance 100% of a loan up to the conforming limit of $806,500, or higher in designated high-cost areas, with no down payment. If you have full entitlement, you may obtain a second VA loan without a down payment. For example, you may purchase a second home while keeping the first, or buy a new residence before selling your current property. If your entitlement is partially used, you may still qualify for another VA loan, but a down payment is usually required. This down payment is typically 25% of the difference between the new loan amount and your remaining entitlement. Common scenarios for holding two VA loans include:

1. Retaining the current home as a rental property while purchasing a new primary residence using remaining entitlement.
2. Purchasing a new home prior to selling the existing property, thereby avoiding a sale contingency.
3. Holding a VA loan on one property and utilizing remaining entitlement to finance a second property.

Key considerations and restrictions:

• Occupancy requirement: You must intend to occupy the new property as your primary residence, usually within 60 days. VA loans cannot be used solely for investment properties, though exceptions exist, such as buying a home for a spouse on active duty elsewhere.
• Restoration of entitlement: After selling the property and repaying the VA loan, you may request a one-time restoration of entitlement. Funding fee: This fee applies to each VA loan unless you are exempt, such as for a service-connected disability. Multiple VA loans are possible if your entitlement allows. The key factor is whether your full or remaining entitlement meets the lender’s requirements. A VA-approved lender can provide calculations specific to your situation.

Further explanation of the down payment requirements for partially used entitlements can be provided upon request.

[Tina Johnson]

Housing Affordability Crisis Deepens in 2026 as Inflation Surges, Mortgage Rates Top 7%, and Wall Street Faces Uncertainty

October 27, 2026 | GCA Mortgage Forums Housing & Mortgage Market News

The housing affordability crisis is getting worse in 2026 as inflation is at 3.7%, mortgage rates are well over 7%, and Wall Street uncertainty is going to be a major problem for buyers.

Why is Housing Affordability Getting Worse in 2026?

The US housing affordability crisis is getting worse as inflation goes up, mortgage rates stay well above 7%, and house prices keep on going up even with weak sales. Inflation in September was 3.7%, and Freddie Mac reported an average 30-year fixed mortgage rate of 7.32% on October 22nd, 2026. On the Wall Street front, there are increasing worries about the level of federal borrowing, inflation, and financial market volatility. For millions of people, it’s becoming more and more difficult to afford a home given the combination of expensive mortgages and rising cost of living.

America’s Housing Affordability Crisis Has Reached a Breaking Point for Many Families

The American dream of owning a home is increasingly out of reach for so many working families. Americans are facing an increasingly uncomfortable reality in that you can’t just earn a decent income and expect to be able to afford a house. Mortgage rates are still very high, house prices have barely budged nationally, and the cost of living is taking an increasing share of the household budget.

Home buyers are under pressure from all sides. Higher mortgage payments reduce your purchasing power. Property taxes and home insurance are going up too which in turn increases your monthly housing costs.

Credit card debt, car loans and other debts can make it more difficult to qualify for a mortgage. Even if you qualify for financing the property you’re looking at you may still find it very difficult to save up the required down payment, the closing costs and the various other unforeseen expenses. The housing affordability crisis isn’t just about expensive houses any more. It’s about the widening gap between household income and the cost of actually owning a house.

September 2026 Inflation Hits 3.7% as Energy Prices Surge

As per the BLS October 14 CPI report, annual inflation rose to 3.7% in September 2026 from 3.4% in August.

• The Sept report had a number of worrying things in it.
• Energy prices were up 20.4% over the year, petrol prices were up 34.2% and overall consumer prices were up 0.6% in September alone (seasonally adjusted).
• Core inflation (excluding food and energy) was 2.6% year on year.
• These numbers are important as inflation will reduce the amount of take home pay that families have available for housing.
• When households spend more on fuel, utilities, food and transport there’s less left over for deposit contributions, emergency savings and the mortgage.
• Inflation also makes it more difficult for the Fed to decide what interest rate to set.

Source: Bureau of Labor Statistics — September 2026 Consumer Price Index

Mortgage Rates Above 7% Are Crushing Homebuyers’ Purchasing Power

Mortgage interest rates are still one of the biggest hurdles for would-be buyers.

• Freddie Mac had the 30-year fixed at 7.32% on Oct 22, 2026.
• That was slightly down on the 7.40% seen the previous week, but a good deal higher than the 6.19% average recorded a year earlier.
• The distinction is important. Mortgage rates have come down recently but borrowing costs are still substantially higher than they were a year ago.

How Much Does a 7.32% Mortgage Rate Cost on a $400k Loan?

Consider a borrower with a $400k loan, 30 year fixed rate mortgage.

• At 6% interest the monthly principal and interest would be around $2,398.
• At 7.32% it comes in at circa $2,748.
• That’s an additional $350 a month or around $4,200 a year.
• Over a 30-year period (assuming the borrower makes all the scheduled payments, with no refinancing and no additional principal paid), the total interest difference is approaching $126k.
• These are illustrative calculations which do not include property taxes, homeowners insurance, mortgage insurance, HOA assessments or closing costs.
• For a household already in a position of having a high debt to income ratio an extra $350 a month can be the difference between qualifying for a mortgage and being turned down.

Source: Freddie Mac Primary Mortgage Market Survey

Wall Street Uncertainty Is Creating New Risks for Mortgage Rates

The problems in the housing market go well beyond the issue of mortgage lending. Wall Street is increasingly concerned about inflation that continues to be persistent, the federal deficit, the level of government borrowing and the financing risks around AI infrastructure.

Reuters on 27 October 2026 reported that Treasury investors are now looking at the wider range of economic risks rather than just the Fed’s next rate decision.

Concerns around the financing of AI infrastructure have been a factor in the shift in investor demand for bonds. Meanwhile federal borrowing requirements and the uncertainty around inflation are continuing to put pressure on longer term rates. These opposing forces mean that the direction of mortgage rates is very hard to forecast.

Why Falling 10-Year Treasury Yields Do Not Automatically Lower Mortgage Rates

• The 10 year U.S. Treasury is a key benchmark for mortgage rates.
• However the relationship is not one to one.
• The vast majority of fixed rate mortgages are actually funded via mortgage backed securities rather than via Treasury bonds.
• Investors buying MBS will look at prepayment risk, liquidity, volatility, the expected return and the likelihood that homeowners will refinance when rates go down.
• When investors demand a higher return for these risks the MBS spreads can widen.
• Consequently Treasury yields can go down without there being an equivalent fall in consumer mortgage rates.
• Borrowers may also come across discount points and pricing adjustments depending on their credit scores, the loan program, their down payment and the lender’s pricing policies.
• A falling 10 year Treasury is encouraging but doesn’t necessarily mean that mortgage rates will fall immediately and in proportion.

Source: Reuters — Bond Investors Focus on AI and Federal Deficits, October 27, 2026

Home Prices Refuse to Collapse Despite Weak Housing Sales

High borrowing costs have put off a lot of would-be buyers, yet national house prices have held up pretty well. As per the NAHRI report issued on 13th October, existing home sales rose 1.5% in September 2026 on the back of August.

Sales were down 2.2% on September 2025. National median existing home sales price came in at $417,500, up 1.3% year over year. Housing inventory rose to about 1.60 million unsold homes, or 4.8 months of supply at the current sales rate.

These figures would suggest that buyers may have more room to negotiate in some markets, but the country has not seen a broad scale collapse in house prices.

Why Aren’t House Prices Falling Any Faster?

One of the big factors is the reluctance of existing homeowners to sell their homes which were financed at much lower mortgage rates.

A homeowner with a mortgage rate right around 3% might well be put off by the idea of buying another property which would require financing at above 7%.

Selling could mean swapping a fairly cheap mortgage payment for a far more expensive one. Low turnover can limit the supply of homes available and hence support prices even as buyer demand falls. Local conditions are still the key issue. Markets with increasing inventory, slower population growth and/or weaker employment are likely to see prices come down, whereas markets which are supply constrained are likely to hold their value.

Source: National Association of Realtors — September 2026 Existing-Home Sales

Is America Heading Towards Another Housing Market Crash in 2027?

The housing affordability crisis is getting worse and that has prompted the question of whether house prices are now heading for a major correction. There is no evidence at all that we’re going to have a nationwide housing market crash.

The risks of local price falls are worth noting. If unemployment goes up, mortgage rates stay high and housing inventory grows faster than demand then sellers in some markets are going to find themselves under pressure to reduce prices.

On the other hand limited housing supply, stable employment and borrowers with low fixed mortgage rates could all help to prevent a broad based decline.

• A housing market correction is not the same as a housing crash.
• A correction might just involve a small price reduction, a longer time on the market and better bargaining power for the buyer.
• A serious housing crash would normally be predicated on much more widespread financial stress, a lot of forced selling and a significant erosion of the underlying market fundamentals.
• Housing is already quite affordable and that in itself doesn’t mean we’re on the brink of another 2008-style housing crash.

Are First Time Buyers Being Priced Out of Homeownership?

• First time buyers are up against some of the toughest conditions in the current housing market.
• Many don’t have any home equity to draw on to go towards their next purchase.
• They have to be saving whilst paying rent, paying for transport, servicing their existing debt and coping with the higher cost of living in general.
• For buyers with little to no savings, poor credit or high debt to income ratios the mortgage approval process can be even more difficult.

FHA, VA, USDA, Conventional, and Non-QM Mortgage Options

Different mortgage products offer different routes to homeownership. FHA financing can be an option for people with lower credit scores or who are able to put down a smaller amount. There may be instances where manual underwriting is required as the automated underwriting system will not process the application.

VA mortgages enable eligible veterans and service members to buy a home with no down payment. There is no set minimum credit score established by VA guidelines (although lenders may have their own requirements).

USDA loans provide eligible borrowers with zero down financing for qualifying properties in eligible areas (subject to household income and program requirements). Standard mortgage programs will be appropriate for those with good credit, a stable income and the means to put down a deposit. Non-QM financing may be available to qualified borrowers who have non-traditional forms of income documentation (e.g. certain self-employed individuals and real estate investors). However program availability doesn’t in any way remove the issue of affordability. A borrower may in fact qualify for the mortgage in principle yet still be put off by the monthly payment.

The Hidden Costs of Homeownership Are Making Affordability Worse

Lots of people looking at buying a property will be concentrating on the advertised monthly P & I. Unfortunately that figure doesn’t represent the full cost of owning a home. Property taxes can go up as a result of reassessment or changes to local tax rates. Homeowners insurance premiums will of course go up at renewal. Some properties will have a requirement for flood insurance, mortgage insurance or monthly HOA assessments.

Maintenance and Unforeseen Repairs Represent Another Financial Burden

A buyer approved on a $2,700 principal and interest payment could find that their actual monthly housing obligation is considerably higher when you add in taxes, insurance and association fees. Maintenance costs come on top of the ongoing expenses. Before you go ahead and buy you should look at the full housing budget i.e. you need to have a provision for repairs and for emergencies.

The Key Question Isn’t Simply How Much Mortgage Can I Qualify For?’

It’s “How much home can I afford comfortably without putting my family’s financial security at risk?”

Will mortgage rates finally go down in 2027?

Lots of Americans are hoping that mortgage rates will drop quite substantially in 2027. However a sustained decline is by no means assured.

Inflation, Treasury yields, MBS pricing, federal fiscal conditions, economic growth and employment all have an impact on the mortgage market.

If inflation eases and investors get more comfortable with the state of the economy then mortgage rates could come down.

On the other hand persistent inflation or a re-emergence of bond market volatility could keep the cost of borrowing up.

Would Lower Mortgage Rates Actually Solve the Housing Affordability Crisis?

Lower mortgage rates would lead to lower borrowing costs and improved purchasing power (all other things being equal).

However cheaper finance could also see more buyers re-entering the market.

If buyer demand outpaces housing supply, home prices could go up and that would in effect negate some of the benefit of the lower mortgage rates.

A meaningful improvement in housing affordability would probably require a combination of lower financing costs, stronger income growth, greater housing supply and lower household costs. Mortgage rates on their own won’t fix all the problems in the American housing market.

The Bigger Question is of Course How Much Longer Can American Homebuyers Keep Up?

The affordability of housing in America has become one of the nation’s most acute economic problems. Families are facing high housing costs, inflation, expensive insurance, high property taxes and borrowing costs which are still significantly higher than they were just a couple of years ago.

There’s Also the Added Element of Wall Street Uncertainty as We Head into 2027

The next few months are going to be absolutely critical for the housing market. Buyers need to be realistic about what they can afford, need to look carefully at their own financing options and not assume that lower mortgage rates and falling house prices are going to be the norm. The decision should be based on your own household finances and the actual market in your area rather than on any number of predictions which may or may not come to pass.

GCA Mortgage Forums Community Discussion: What Happens to Housing Affordability in 2027?

Will rates finally drop below 6%? Will home prices start to come down as buyers hit their financial limits? Could the volatility on Wall Street make mortgage financing even more expensive?

Will American families face another year of persistent inflation, costly mortgages and increasingly unaffordable homes?

We’d like to hear from homebuyers, homeowners, mortgage professionals, real estate agents, economists and investors.

Share your views, your thoughts, your predictions and your questions with the national housing and mortgage community via the GCA Mortgage Forums.

bls.gov

Access Denied

Access Denied

[Tina Johnson]

10-Year Treasury Yields Fall Below 5.00%: Implications for Mortgage Rates and Homebuyers

October 27, 2026 | U.S. Mortgage and Housing Market Update

Key Question: Will Mortgage Rates Go Down Now That the 10-Year Treasury Yield Is Below 5%?

The 10-year U.S. Treasury yield dropped below 5.00% on October 27, 2026, landing between 4.97% and 4.99%. This could be good news for homebuyers and homeowners, but it doesn’t guarantee that mortgage rates for conventional, FHA, VA, USDA, or non-QM loans will fall right away. Mortgage rates depend on mortgage-backed securities prices, investor demand, market conditions, and lender decisions.

What’s Driving the Fall in 10-Year Treasuries?

The 10-year yield has reversed after rising above 5.00% earlier in October and peaking at 5.40%.

On 22 October, yields on the Treasury fell below 5.00% as investors moved into Treasuries (the safe haven asset) in the face of the changing market. The more people buy Treasuries, the higher the prices and the lower the yields. Investors are also looking to the Fed’s October 28 statement for guidance on inflation, the economy, and future policy.

Why Have Mortgage Rates Not Fallen at the Same Rate as the Treasury Yields?

The 10-year is a key benchmark for the 30-year fixed-rate mortgage, but it’s not the only thing that determines how residential mortgages are priced.

Mortgage lenders will also look at mortgage-backed securities (MBS). The investors in MBS will require a premium for the various risks involved such as prepayments, interest rate risk etc.

The mortgage spread is the difference between mortgage rates and Treasury yields. If investors are concerned about inflation, economic problems or early loan payoffs then the spread between mortgage rates and Treasury yields can widen. That would mean mortgage rates could stay elevated even if the Treasuries come down. Research from the Dallas Fed suggests that a change in Treasury yields doesn’t necessarily lead to a change in mortgage rates.

Implications for FHA, VA, USDA, Conventional, and Non-QM Loans

Conventional loans: lower Treasuries could lead to better pricing if the agency MBS do well. Borrowers with lower credit scores or with larger loans as a proportion of the value of their home will still end up paying more. FHA loans: FHA borrowers could see a benefit if the Ginnie Mae securities do well, though rates will still be driven by credit score, lender pricing and the discount points you choose.

VA loans: Veterans who are eligible may actually get better rates if the government mortgage securities strengthen. The VA doesn’t set a minimum credit score (though each lender will have their own credit criteria).

The rates may improve, but the income caps, property eligibility and approval criteria all remain the same. Non-QM loans: Rates on non-QM loans (i.e. bank statement, DSCR, asset depletion) will be driven by private investor interest, available cash, credit risk and market pricing. They may behave in a very different way to a government-backed or standard mortgage.

Will Borrowers With Scores Below 640 Still Be Required to Pay Discount Points?

It’s still possible. Lower Treasury yields don’t remove risk-based pricing.

People with credit scores in the 500 to 639 range may still end up paying higher interest rates or discount points. It all depends on the type of loan, the investor’s guidelines, the loan-to-value ratio and a number of other things.

However, points aren’t mandatory simply because the borrower’s credit score is below 640.

Should Homebuyers Lock Their Mortgage Rates or Should They Wait and See if Rates Might Change?

People who are nearly at closing should be very careful about whether to lock in their mortgage rate at this point or whether to wait and see if rates go down. With the 10-year Treasury yield looking so good, it’s certainly possible that rates could go down. New economic data, the Fed’s latest statements and the MBS market could all change very quickly.

The 10-year Treasury is just one piece of the puzzle. The actual mortgage rate, the discount points, the lender fees and the APR all matter. It’s not at all clear that this is the start of a real rate drop.

The drop below 5.00% is positive for the housing market, but it’s still very early days to say that mortgage rates are actually starting to fall. What happens next will be down to inflation expectations. Homebuyers and homeowners should be looking at the actual cost of the loan rather than assuming that mortgage rates will always follow Treasury yields. It’s not clear whether the mortgage lenders will pass on the recent drop in Treasury yields to the borrower, or whether they’ll keep mortgage rates above 7.00% with discount points in the face of the lower Treasuries (St. Louis Fed and October 27, 2026 Treasury market report).

[Tina Johnson]

If you make one extra mortgage payment each year, you can pay off a 30-year loan much sooner and save a lot on interest. How much you save depends on your interest rate, loan amount, and when you make the extra payments.

For example, if you have a $400,000 mortgage at a 6.75% interest rate for 30 years, your monthly payment for principal and interest would be about $2,594. If you only make the regular payments, you would pay around $533,981 in interest over the life of the loan.

If you add $216.20 to each monthly payment, which adds up to one extra payment per year, you could pay off your mortgage in about 24 years instead of 30. This would save you about $126,184 in interest.

With a standard fixed-rate mortgage, interest is usually charged on the remaining loan balance. When you make extra payments, you lower the principal, so you pay less interest in the future. Before you make extra payments, check with your mortgage company to make sure the extra money goes straight to your loan principal, not to future payments. Also, find out if there are any prepayment penalties. Think about whether putting extra money toward a 6.75% mortgage is the best choice, or if you should save for emergencies, retirement, or other investments. Double-check the amount and timing of your extra payments to be sure everything is correct.

[Tina Johnson]

This file deserves an immediate underwriting review, but the information provided is not enough to predict approval or an October 15 closing. The most important missing detail is whether these were four separate 30-day late payments, a single account progressing to 60 or 90 days late, or late housing payments.

A 605 score does not automatically disqualify her. VA does not establish a minimum credit score, although the lender may impose one. High income helps with affordability, but it does not resolve the credit concerns by itself. Veterans Affairs

Here is how I would advise Tina and Toni:

Review the actual late-payment history first

Before preparing the letter, identify:

• Each creditor, account type, and month reported late.
• Whether each delinquency was 30, 60, 90, or more days.
• Whether the four lates occurred during one temporary hardship or across unrelated periods.
• The date each account became current and payment history since then.
• Whether rent or mortgage payments remained current.
• Any other unresolved derogatory credit.

Four late payments concentrated during a documented disruption present a different underwriting picture from repeated delinquencies continuing after the disruption ended. Neither situation should be characterized as an isolated event without reviewing the report.

VA generally considers satisfactory credit reestablished after 12 months of satisfactory payments following resolution of the last derogatory item in circumstances not involving bankruptcy. Therefore, recent late payments require careful analysis; “good reasons” alone do not establish acceptable credit. benefits.va.gov

What the borrower’s explanation letter should cover

The borrower should write a factual, signed, dated explanation with a clear timeline. It should address five points:

1. What happened and when. Give the deployment, permanent change of station, spouse’s unemployment, and maternity-leave dates that actually relate to the missed payments.

2. How those events caused each delinquency. Explain whether the issue involved reduced household income, delayed military allowances, relocation expenses, or a documented payment-management problem. Simply stating “I was deployed” does not explain why an account went unpaid.

3. When the accounts were brought current. Identify the cure dates and attach evidence where available.

4. What has changed financially? Describe current income, resolved relocation costs, and the spouse’s current employment status. If the spouse remains unemployed, explain how the household now manages expenses using the borrower’s verified income.

5. What prevents recurrence. Describe measures actually implemented, such as automatic payments, payment alerts, an emergency reserve, or a household budget.

Clarify the maternity-leave issue. Do not assume leave reduced her military pay. If her pay continued, the letter should accurately explain what financial or administrative disruption occurred rather than claiming an income loss.

Supporting documents to send securely

The explanation will be more useful when the lender can verify its timeline. Depending on what actually happened, collect:

• Deployment and PCS orders.
• Current and relevant historical Leave and Earnings Statements.
• Documentation of the spouse’s job loss and subsequent employment, if applicable.
• Relevant bank statements showing income changes, payment attempts, or account cures.
• Creditor statements confirming current status.
• Rental or mortgage payment history.
• Asset statements showing available funds and reserves.

Provide these through the lender’s secure document channel.

How to structure the letter

Use this as an outline, with the borrower supplying the facts:

Re: Explanation of late payments

I am explaining the late payments reported on [creditor/account ending in XXXX] for [months and delinquency severity].

From 2026 through 2026, [describe the documented events]. These circumstances affected my ability to make the payments because [specific explanation connecting the events to the affected accounts].

I brought [account] current on 2026. [Describe subsequent payment history accurately.]

The circumstances have now changed as follows: [current income, employment, relocation, and household-expense facts].

I have implemented [actual payment safeguards]. Attached are [documents supporting the explanation].

[Borrower’s signature and date]

What Toni should confirm immediately

Ask Toni to obtain an underwriter’s preliminary review of the complete credit report and supporting documents, and confirm:

• Jet’s current VA score and recent delinquency requirements.
• The automated underwriting findings and whether manual underwriting is required or available.
• Verified qualifying military income, including whether allowances will continue at the new duty station.
• Total housing payment, other debts, household size, childcare expenses, and VA residual income.
• COE, entitlement, occupancy, appraisal status, and remaining closing requirements.

I would request a contract extension now if the appraisal or underwriting review is still outstanding. With roughly 12 days remaining, the borrower should have a realistic contingency.

The practical recommendation is to submit the documented scenario promptly and let underwriting determine whether the credit is acceptable. An explanation letter supports that decision; it does not guarantee an exception or approval.

benefits.va.gov

VA.gov | Veterans Affairs

Apply for and manage the VA benefits and services you’ve earned as a Veteran, Servicemember, or family member—like health care, disability, education, and more.

[Tina Johnson]

Ryon, thank you for posting this and for supporting our loan officers with tougher credit and manual underwriting scenarios.

This is exactly the type of lending flexibility our team looks for, especially in today’s higher-rate environment, where we are seeing more borrowers with lower credit scores, prior bankruptcies, and files that may require manual underwriting.

The ability to go down to a 500 FICO score on an FHA loan while following HUD guidelines, without additional lender overlays, is especially valuable. The same goes for VA borrowers, where the VA itself does not establish a minimum credit score, and the overall file, payment history, residual income, and underwriting profile can matter more than a single credit score.

We also appreciate your willingness to review bankruptcy scenarios and other difficult files rather than automatically turning them away.

I encourage our GCA loan officers and mortgage professionals on the forum to send Ryon scenarios that don’t fit neatly into the standard automated underwriting box. Sometimes a file that looks difficult at first needs the right lender, the right documentation, and an experienced underwriter willing to evaluate the complete borrower profile.

Thank you again, Ryon, and thank you to Village Capital & Investment for being a resource to the GCA Mortgage Forums community.

[Tina Johnson]

How Much Interest Can You Save by Making Extra Mortgage Payments Every Year?

If you make an extra mortgage payment, you can pay off your loan faster and pay less interest overall. Just one extra payment each year can cut years off a 30-year mortgage and save you a lot of money.

There are several ways to make extra payments, and each works a bit differently. You can pay twice a month, every two weeks, or add extra to your monthly payment. Understanding these options helps you choose the best way to save on interest.

What’s the Difference Between Monthly, Semi-Monthly, and Bi-Weekly Mortgage Payments?

Most people make one mortgage payment a month, which works out to 12 payments a year. A standard 30-year mortgage will have 360 monthly payments. With the semi-monthly payment option, you pay half your monthly mortgage twice a month (typically on the 1st and the 15th). That’s 24 half-payments per year, which is the same as 12 full monthly payments.

Paying twice a month might seem like it will help you pay off your mortgage faster, but it does not always mean you will finish sooner or save much on interest. Your actual savings depend on how your lender handles the payments.

Biweekly mortgage payments are different. Rather than paying twice a month you pay half of your monthly mortgage every two weeks. As there are 52 weeks in a year, bi-weekly payments amount to 26 half-payments per year. That’s 13 full mortgage payments rather than the usual 12. If your lender applies your extra payment to your loan balance, your balance will go down faster. A lower balance means you will pay less interest over the life of the loan.

How Much Can You Save by Making One Extra Mortgage Payment Each Year?

Let’s take a $400k mortgage at a fixed 6.75% interest rate over 30 years. The required monthly principal and interest payment is about $2,594.39. That figure does not include property taxes, homeowners insurance, mortgage insurance or homeowners association fees. If the borrower simply makes the required monthly payments for 30 years the total interest expense will be about $533,981.

Now suppose the borrower makes the equivalent of one further monthly principal and interest payment each year. Instead of making one extra payment of $2,594.39 per year, the borrower can add about $216.20 to the loan balance each month.

With that approach the mortgage can be paid off in about 24 years rather than the standard 30. The borrower can save about six years of payments and more than $126,000 in interest. These savings come from starting extra payments right away and making them every month for the whole loan term.

How much can you save by making two extra mortgage payments per year?

Using the same $400,000 mortgage at 6.75% interest, suppose the borrower makes the equivalent of two additional monthly payments every year.

• Two standard principal and interest payments come to around $5,188.78 per year.
• Divide that by 12, and you’ve got an extra principal payment of roughly $432.40 per month.
• The borrower pays about $3,026.79 per month on the loan and interest, instead of $2,594.39.
• With this plan, the 30-year mortgage could be paid off in about 20 years and 3 months.
• The homeowner can shorten the loan term by about 9 years and 9 months.
• This could save around $200,000 in interest compared to only making regular payments.
• Extra principal payments can really speed up your mortgage payoff.

How Much Can You Save by Making Three Extra Mortgage Payments Each Year?

Now consider the equivalent of three further mortgage payments per year.

• Three monthly principal and interest payments come to approximately $7,783.17 per annum.
• Divide that by 12, and you’ve got an extra payment of approximately $648.60 going towards the loan balance each month.
• The borrower pays about $3,242.99 per month toward the loan and interest, instead of $2,594.39.
• With that repayment strategy the mortgage would be paid off in about 17 years 7 months.
• With this method, you could pay off your 30-year mortgage more than 12 years early.
• The homeowner would save approximately $250k in interest.
• Adding an extra $648.60 to your monthly mortgage payment takes discipline, but the long-term interest savings can be substantial.
• First work out your required monthly principal and interest payment.
• Next, decide whether to make the equivalent of one, two or three further mortgage payments per year.
• Multiply your normal monthly payment by the number of extra payments you want to make each year, then divide by 12 to find the extra amount to pay each month.

Making Extra Monthly Payment Each Year

For instance if your required monthly principal and interest payment is $2,400 then one extra annual payment is the same as $200 in extra monthly payments.

• Two further annual payments amount to $400 in extra monthly payments.
• Three extra annual payments would mean $600 in extra monthly payments.
• You can use a mortgage calculator that includes extra payments to find your new payoff date, total interest paid, and overall savings.
• A standard calculation adds monthly interest to your loan balance, subtracts your regular and extra payments, and repeats this until the loan is paid off.
• The payoff date shows how much time you save.

The difference between the original total interest and the interest with a faster payoff shows exactly how much you will save.

Is it Better to Make Extra Mortgage Payments on a Monthly Basis or on an Annual Basis?

Making an extra monthly mortgage payment will almost always save you more interest than making one large payment at the end of the year. This is because mortgage interest is calculated on the remaining loan balance. Paying down your loan balance early reduces your future interest.

For example, adding $200 to each monthly payment usually saves more interest than making a single $2,400 payment in December. A $2,400 payment in January might save you even more than spreading it out. Every extra dollar you pay toward your loan balance lowers your total interest and shortens your loan term.

Do You Need a Biweekly Mortgage Payment Program?

You do not need to enroll in a formal bi-weekly payment scheme in order to achieve the same interest savings. Many servicers will allow you to make additional principal payments directly via your online mortgage account. Instead of paying a company for a biweekly plan, you can divide your monthly payment by 12 and add that amount to each regular payment. For example, if your payment is $3,000, adding $250 per month equals one extra payment per year.

It’s important that your lender applies any extra payment directly to your loan balance, not as an early payment for the next installment. Check how your lender handles partial payments and if there are fees for early payment.

Paying off your mortgage faster can save a lot on interest, but it might not be right for everyone. You may want to focus on other financial needs first. It’s wise to have an emergency fund before making large extra payments. An extra payment toward your loan balance clearly reduces your future mortgage interest. Investment returns, however, are uncertain and could be higher or lower than your mortgage rate. Borrowers should look at their mortgage rate, debts, savings, retirement plans, and overall finances before deciding how much extra to pay.

Final Thoughts on Making Extra Mortgage Payments

Making one, two, or three extra mortgage payments each year can greatly reduce the total interest you pay. For a $400,000 mortgage at 6.75% interest, one extra annual payment (spread out monthly) can save about $126,000 in interest. Two extra payments can save about $200,000, and three can save about $250,000. The exact savings depend on your mortgage terms, payment timing, and how your lender credits extra payments.

You do not need to refinance or pay for expensive mortgage programs to get these benefits. Making steady extra payments can shorten your loan term and give you more flexibility. Pick an extra payment amount that fits your budget and lifestyle.

[Tina Johnson]

What are the list of states that allow your house as a NMLS home branch office instead of leasing a brick and mortar office?