Some mortgage companies require property taxes and homeowner's insurance to be paid monthly along with the mortgage payment. The funds are then held in an escrow account to be paid at the end of the year. The money in the account earns interest, but you are not the one who earns that interest. The mortgage company earns the interest. Do what you can to allow for the taxes and insurance to be billed directly by you on a yearly basis instead of being held in an escrow account. Continue paying yourself monthly so you can receive the savings interest and to prepare yourself for the substantial payment at the end of the year. Keep in mind the escrow account may be required for loans with less then 20% equity. Always check with your mortgage company for clarification.

     Determine whether a fixed or adjustable rate mortgage (ARM) is right for you. The interest rate for an ARM is lower than a fixed rate mortgage resulting in a significant difference in the monthly payment. An adjustable rate may be a good choice if you plan on staying in your home for a short period of time (perhaps less than 5 years). If you believe the interest rates will rise dramatically and you intend to live in your home more than 5 years, then consider the fixed rate offered by a 15, 20, or a 30-year mortgage which is the prevalent choice for most buyers who don't realize what the ARM offers. The use of an ARM is a great option to significantly reduce your mortgage payment. For instance: a 5/1 ARM can have an interest rate of 4.25% locked in for 5 years while a 30-year mortgage could be 5.5% which is locked in for 30 years. The mortgage payment for a $200,000 ARM mortgage would thus be about $984 instead of about $1136 for a 30-year mortgage. The interest rate for the 30-year mortgage will never change during the life of the loan. Although, the ARM will remain the same for a 5-year period, then increase to a rate specified in the mortgage contract. If you intend to live in the house for less than 5 years (which is common for most homeowners) and you want to reduce your mortgage payment, then an ARM is a good choice.

     Another variation of an ARM is the option of interest only. The result will be a payment that is only for the interest and no principal will be applied. For instance, the 5/1 ARM stated earlier is $984 while the 5/1 ARM interest only will require interest only payments of $708. Normally each month the amount of interest paid will decrease, but that is not the case for an interest only loan. Instead, the interest only monthly payment will always remain the same. Interest only loans can be a powerful tool to allow an opportunity to invest the difference ($984 - $708 = $276) through some means which can result in a greater return on your money than the interest rate for the loan. At the end of the year, simply make a principal only payment equal to all the principal payments that would have been applied throughout the year. The options and opportunities are endless. Simply use your money wisely.      CAUTION: Don't use an ARM to provide you a means to purchase a higher priced home because doing so will probably simply result in you becoming overextended financially which can lead to problems in the future.


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