After Closing FAQs

Depending on your loan program and your down payment, you may have to utilize Private Mortgage Insurance. In some cases, you may be able to use a second mortgage to avoid paying PMI. Changes in the tax laws have also made PMI tax deductible for some borrowers. Consult your loan officer or a tax advisor to see if you meet the requirements to deduct your PMI.

For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price – not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain “higher risk” loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price.

Keep track of your principal payments. Also keep track of what other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven’t paid down much principal – it’s been mostly interest. If you are fortunate to experience an increase in property value through home price appreciation in your area, you could earn 20 percent equity even if you haven’t paid down much principal.

When you think you’ve reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments! You will need to notify your mortgage lender that you want to cancel PMI payments and you’ll need to submit proof that you have at least 20 percent equity. A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is – and most lenders require one before they’ll cancel PMI.

Even though your mortgage servicer is responsible for paying your taxes and insurance out of your escrow account, it just makes sense to periodically check to see that these payments are being made properly. While you’re at it, you’ll want to review your homeowner’s insurance policy. It’s a good idea to review your policy every two to three years to make sure it covers recent home improvements, replacement costs for the contents of your home, and that its reconstruction coverage is keeping pace with inflation.

One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax *. To do so, you’ll need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules.

• Home Mortgage Interest
  For your home mortgage interest to be deductible, it must be for a qualified first and/or second home or a home improvement loan. Additionally, the mortgage loan must be secured by your main home or a second home, and only interest paid for that tax year can be deducted. Homeowners can deduct interest expenses on up to $750,000 ($375,000 if married filing separately) of qualified mortgage debt from their income taxes.
• Points
  Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as pre-paid interest. If you meet certain conditions set forth by the IRS you can generally deduct them on your taxes in the year in which they were paid. Check with your tax advisor for the most current information applicable to your situation.
• Real Estate Taxes
  State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the property’s assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.
• Restrictions on Itemized Deductions
  The amount of itemized deductions you can take are restricted by your adjustable gross income. Check with a tax advisor for further information on itemized deductions.
• Non-Deductible Items
  Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:
  • Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
  • Insurance
  • Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
  • Utilities
  • Domestic help
  • Depreciation

* The information contained here is for informational purposes only and may not reflect current tax year rules and regulations. You will need to consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.

Your monthly mortgage payments are handled by what is known as a mortgage servicer. The mortgage servicer is responsible for collecting your monthly payments and handling your escrow account.

Your escrow account is a special account held in your name to pay obligations such as property taxes, insurance premiums and other escrow items. The mortgage servicer uses the funds from your escrow account to insure that these expenses are paid in a timely fashion. This avoids the risk of having lapsed insurance coverage or delinquent taxes. And it gives you the peace of mind of knowing that you won’t have to make large lump sum payments during the course of the year.

At the time the escrow account is established, your mortgage servicer is required to provide you with a statement of estimated expenses and the expected total of those expenses for the next 12 months.

Each year thereafter, the mortgage servicer is required to provide a statement that outlines what portion of your mortgage payments were applied to principle, interest, taxes, insurance, and other escrow items. The annual statement also details any adjustments in payments to cover taxes, insurance and other escrow items.

During the course of your loan, your mortgage servicing company may change. Prior to a change, your current mortgage servicer must notify you in writing with the effective date the first mortgage payment is due at the new mortgage servicer’s office. You should also receive notification from your new mortgage servicer. These notifications should include:

• Name and address of the new mortgage servicer.
• The last date your current mortgage servicer will be accepting your mortgage payments.
• The date your new mortgage servicer will begin accepting payments.
• Free or collect telephone numbers to call for more information about the transfer of service for both your current and new mortgage servicers.
• Notice of whether you may continue any option insurance (such as disability insurance). Also what action, if any, you have to take to maintain coverage. As well as whether the insurance terms will change.

In the event that your mortgage servicer changes, the new servicer is required to honor the terms and conditions of your original mortgage agreement. This requirement’s exception is the terms and conditions related directly to servicing the loan.

Following the transfer, you’ll have a 60 day grace period in which you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer rather than the new one.

If you have any questions or disputes with the new servicer, contact your servicer in writing. Continue to make your monthly payments while your dispute is settled. The servicer is required to investigate disputes and make any necessary corrections within 60 business days.

Even with today’s low interest rates, the total amount of interest you may pay over the life of your mortgage can seem like a staggering amount. It’s one of the reasons many people set a goal to pay down their mortgages early. But pre-paying a mortgage may not be for everyone. Here are some reasons to consider it:

• Paying your mortgage off will make you completely debt free.
• You want to reduce expenses as much as possible so you can put more money into your retirement fund.
• You plan to move in a few years and will need cash for your next home – for closing costs or for a down payment. Applying more money towards your mortgage balance will increase equity, which can be converted to cash if needed.
• Currently, you do not receive a tax break on your mortgage interest. If your mortgage is small, your interest may not exceed the standard deduction the IRS gives non-itemizing taxpayers. Without that tax break, the actual cost of your mortgage is higher.
• You pay private mortgage insurance (PMI). If you have less than 20 percent of equity in your home, making extra payments will build more equity sooner, allowing you to cancel your PMI. Eliminating PMI will reduce your monthly payment

But for some people, paying your mortgage off early can hurt you more than help you. Here are reasons to forego pre-paying your mortgage:

• Your mortgage contract includes prepayment penalties.
• You have other high-cost debts. Credit card interest rates are often more than twice that of most home mortgages. Any extra cash should go toward paying off the balance of those first.
• You want more money in your pocket now.
• You are in a high tax bracket and this additional deduction would lower your income tax bracket as well as your taxes
• You want to put money into another investment such as the stock market or real estate.

Many homeowners are making the proactive choice to secure a Home Equity Line of Credit (HELOC) for emergencies. A HELOC is a revolving line of credit that only charges interest when you actually draw money from the line of credit. As you repay the balance of the draw, the credit becomes available again. Securing a HELOC in advance can be a great help if you’re ever laid off or have an unexpected medical or other emergency.

The information in your credit report has a huge impact on whether or not you will again qualify for a mortgage loan. That’s why it’s important to periodically check your credit report.

Now it’s even easy to do so. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each credit reporting company provide you with a free copy of your credit report, at your request, once a year. To request your free credit report, visit www.annualcreditreport.com.

If you have available equity in your home, you may be able to open up a Home Equity Line of Credit or take out a Home Equity Loan. Taking out a home equity loan to payoff credit card debt, car loans and other higher interest debts makes good financial sense.

The timing might be right to refinance your mortgage loan. New rates may help you significantly lower your monthly payment. Or you might want to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation – whatever! Perhaps by refinancing you can even pay off your mortgage sooner!

We’ll work with you to determine if the timing is right to change your loan program, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your future plans.

If you have received a loan from First Heritage Mortgage and you have questions regarding your first mortgage payment, please contact our customer service representative.