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Managing your home finances

Transcript: A successful homeowner is smart about their finances. It is best to plan ahead and budget.

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A successful homeowner is smart about their finances. It is best to plan ahead and budget.

Follow three basic principles.

Live within your means.

Pay your bills, including your mortgage payments, on time to maintain good credit and continue to budget and save.

Typically, a portion of every mortgage payment goes toward paying the principal balance of your loan But in the early years of your loan term, the majority of your monthly payment goes toward paying the interest.

When you pay additional funds toward the principal, you repay your mortgage faster, and reduce the amount of money you will pay in interest overall.

So, making extra payments can be a financial advantage for you.

Take a look at the difference extra payments can make to the loan term length.

Here it is with no extra payments a year, then one extra payment a year, two extra payments and three extra payments a year.

There are different ways you can set up your payment schedule to make additional payments.

One way is to change from a monthly payment schedule to a payday payment schedule. So instead of making a full payment once a month, you'll make partial payments more often.

If you are paid every week or every two weeks, coordinating your mortgage payments with your paycheck cycle typically results in one extra monthly payment per year, which goes entirely toward reducing your principal balance.

Another way is to send extra payments of any amount whenever you have additional funds, like when you get a tax refund or an employment bonus.

Equity is the difference between the market value of your home and the amount you owe the lender.

In other words, it's the amount you could sell your home for, minus what you owe on it.

The economy, geographic location, housing prices, sales in your area, home improvements, and how you maintain the property may all play a part in determining your equity in your home.

Your mortgage interest and property taxes may add up to a tax deduction for you when you file your income tax returns.

Consult your tax advisor about the deductibility of interest and taxes.

Take charge of your finances by planning ahead, spending responsibly, and paying your bills on time.