Most homebuyers are keenly aware of their mortgage rate—at least at the outset.
But it seems that awareness wanes once they get settled in.
In fact, according to a recent study by Bankrate, a whopping 29% of homeowners don’t know their current mortgage rate.
It’s a mistake that experts say could have serious repercussions. From thousands more paid in interest to missed payments and lost financial opportunities, the costs of not knowing your rate can be big.
Don’t know your mortgage rate? According to industry experts, here’s what could happen.
You might be paying off the wrong debts.
“It is important for homeowners to know their mortgage rate so they can compare it to the interest rates on their other debt like student loans, car loans or credit card debt. This can help them prioritize which to pay off first.
People are often tempted to use any extra dollars they have to pay down their home mortgage before other debt sources because it is the largest. But considering home mortgage rates are usually lower than interest rates on other forms of debt, this could be a mistake, as they are likely accruing interest at higher rates on their other debts and should prioritize paying those off first.” -Paul Ruedi, Ruedi Wealth Management
Your loan may take longer to pay off.
"Understanding your mortgage is key to having a plan in place to reach your goal for that property. When you know your interest rate and monthly payment, you're in a better position to pay off the loan sooner should you choose to make additional principal payments." -Stephen Rischall, 1080 Financial Group
You might miss a chance to refinance.
“It’s important to know your mortgage rate so that you can compare it to current mortgage rates to evaluate whether you may want to consider refinancing your mortgage. This is especially important with adjustable-rate mortgages because if your interest rate is increasing as interest rates continue to rise, you may need to make a decision to refinance to a fixed rate. The higher interest rates go, the higher your variable rate mortgage is going to go and the more money it will cost you.” -Ed Snyder, Oaktree Financial Advisors
“Over time, mortgage rates fluctuate within an economic driven market. A smart borrower will understand that their mortgage is a fluid investment, so as rates change the mortgage may need to be restructured.” -Chong Yi, The Yi Team at Fairway Independent Mortgage
You might not know where you’re money’s going.
“All too often everything mortgage is grouped together in the consumer's eyes. This means that not knowing your mortgage rate is correlated with not knowing what type of mortgage you have. This can be a huge problem.
Also, because a house payment often feeds an escrow account that pays insurance and property taxes, not just a mortgage, it is easy to lose track of what expenses you are paying. The recent Wells Fargo scandals point to an ever-increasing need for customers to monitor their accounts.” -Matthew Ure, Anthony Capital
Your payment could be changing, and you won’t be prepared.
“It is especially important to know your interest rate if you have an adjustable rate mortgage. After the fixed period of term and rate, your rate will float and you will want to know the maximum it can adjust each year. You don't want to be unaware of a large spike in the monthly payment, especially if your budget is tight.” -Clint Walkner, Walkner Condon Financial Advisors
You might miss a payment.
“It is especially important for people to watch their rate if they have an adjustable-rate loan because, in a rising interest rate environment, like the one we are in now, it could potentially cause them to miss a payment, because the overall monthly payment has increased to a level too high to be sustainable.” -Ted Snow, Snow Financial Group
Only One Piece of the Puzzle
Ultimately, homeowners should know more than just their rate if they want to come out on top.
As Yi puts it, “Your mortgage is a long-term investment. Keep sight of your long-term goals. Are children in your future? College tuition? Are you staying in the house for a few years or a few decades? What are your retirement plans?”
Homeowners should consider these goals—as well as their rate—when structuring their initial mortgage loan and again as they work to repay it or refinance it.
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