The Importance of an Annual Mortgage Review for Homeowners

  • December 18, 2023
  •   •  
  • 4 min. read time
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Just as we prioritize our physical well-being with annual checkups with our doctors, it’s important to take a moment each year to assess our financial health. One of the essential financial checkups is the annual mortgage review.

This proactive approach can have a major impact on your financial well-being and can save you big money in the long run. Whether you have a fixed-rate loan, adjustable-rate mortgage (ARM), VA loan, FHA loan, or any other type of home loan, this review can be a game-changer.

Assess Your Financial Situation

An annual mortgage review provides you with an opportunity to assess your current financial situation. If you’re planning on making any major financial decisions in the upcoming year, such as paying for college, remodeling your home, or buying an investment property, your mortgage loan could play a big role. 

Knowing where you stand with your mortgage can help you make informed choices about accessing funds for any additional ventures.

Leverage Home Equity

Home equity is a valuable asset that many homeowners underestimate. During your annual mortgage review, you’ll get a look at how much your home has appreciated, as well as the amount of equity in your home. This information is vital because it can be a resource to tap into for future financial endeavors.

Let’s say you want to remodel your home. You might be able to use a home equity line of credit (HELOC) or refinance your mortgage to access the funds you need. By using your home equity wisely, you can finance your projects at a lower interest rate than other forms of borrowing. This can save you money in the long term.

Plan for Future Investments

Your annual mortgage review is an excellent time to discuss your upcoming investments or major financial decisions with a professional. Whether it’s turning your primary residence into an investment property, expanding your real estate portfolio, or venturing into other investment opportunities, your home can play a big part in bankrolling these endeavors.

Your Preferred Rate Mortgage Advisor can help you explore how your current mortgage loan and the equity in your home can be used to facilitate any of these investments and potentially save you money in the process.

Manage Your Debt

We all face financial challenges now and again. Mounting credit card debt, medical bills, and other unexpected expenses have been known to derail even the best-intentioned people. Your mortgage review is the perfect time to discuss any speed bumps with a financial professional who can help you explore all your options and potential solutions.

One option to consider is consolidating your debt under your mortgage using your home equity. By rolling your high-interest debts into your mortgage, you can benefit from a lower interest rate and a single monthly payment. This can make managing your finances more efficient while saving you money in interest payments over the long term.

Another option might be to consolidate your debt using a home equity loan or personal line of credit. Your Preferred Rate Mortgage Advisor can connect you with the right financing for your specific scenario. 

Eliminate Private Mortgage Insurance

If your mortgage loan required you to pay for private mortgage insurance (PMI) when you initially purchased your home, an annual mortgage review can be the right time to assess whether you’re eligible to eliminate this additional cost from your mortgage payments.

Often, once you’ve built up 20% equity in your home, you can request to remove PMI. This typically has some requirements to be eligible but can reduce your monthly mortgage payment amount and save you money on your mortgage over the long term. Your advisor can guide you through the process and determine whether you qualify to remove PMI. It’s important to note that mortgage insurance for FHA loans is treated differently by the Federal Housing Authority, and cannot be removed.

Explore Loan Term Options

Your annual mortgage review is an opportunity to re-evaluate the terms of your mortgage loan. If you currently have a long-term loan, such as a 30-year fixed-rate loan, you might consider shortening your loan term. If you shorten your loan term to a 15-year fixed-rate mortgage, it can help you pay off your home loan faster and save tons on interest over the life of the loan.

An annual mortgage review can be even more important if you have an adjustable-rate mortgage (ARM). That’s because the review is the ideal time to assess your current rate and the potential risk of rate fluctuations. You can also talk about refinancing into a fixed-rate loan if you’re looking to obtain a stable interest rate, ensuring that your monthly payment remains consistent and predictable.

Explore Payment Options

Did you know that if you make one extra principal and interest payment per year, you could shave years off your mortgage?

This is information you’ll learn in your annual mortgage review. Most mortgages offer flexible payment options, and if your financial situation allows for it, you might be able to increase your payment amount or make additional payments to pay your mortgage off faster. 

Stay Informed About Interest Rates

Even if you have a fixed-rate mortgage, interest rates play a pivotal role in your mortgage and overall financial health. Your annual mortgage review is a way to stay informed about current interest rates and any trends in the mortgage market. 

By keeping an eye on interest rate movements, you’ll know whether it’s the right time to refinance or lock in a more favorable rate. If you’re looking to buy another home, second home, or investment property, this is a great time to talk about the right time to buy, the type of mortgage you should be looking at, and strategies around higher interest rates. 

Yearly Financial Checkup

An annual mortgage review is a prudent practice for current homeowners. It provides you with the opportunity to assess your financial situation, leverage your home equity, plan for future investments, manage debt, eliminate unnecessary costs, explore loan term options, stay informed about interest rates, and so much more. You didn’t think one little meeting could do so much, did you?

Owning a home isn’t a passive investment. So the annual mortgage review makes sure your investment stands the best chance of paying off for you. Pair that with an experienced Preferred Rate Mortgage Advisor, and you can make the most out of your home loan while potentially saving money in the process.