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Maximizing extra mortgage payments

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POSTED August 26, 2011 1:44 a.m.

DEAR BENNY: In response to your question about whether it is better to make additional mortgage payments monthly or annually, I believe you are correct that monthly payments are better than if the annual payment is made at year’s end.
In this scenario, monthly payments would be made January through December, compared to the annual payment being made in December. However, if one makes the annual payment at the beginning of the year (e.g., January), that would be better than monthly payments throughout the year.
So it really depends on when the annual payment is made. If it is before the midpoint of the year, then an annual lump-sum payment beats monthly payments. Conversely, monthly payments are better if the annual lump sum is made after the midpoint of the year. --Gerrit

DEAR GERRIT: I am a firm believer in making extra payments on your mortgage if you are financially able to do so. But many readers asked me how to make those payments: once a year or monthly?
I agree that if you can make at least one extra monthly payment in January of each year, this is the best approach. Otherwise, divide your monthly payment by 12 and add that extra amount to your monthly payments.
But please remember to advise the lender (on your statement coupon and on your check) that you are making a monthly payment toward principal.
Be warned that these payments reduce your mortgage balance; they are not interest that you can deduct when you file your annual income tax return. A recent tax court denied a taxpayer the right to deduct interest when his checks clearly stated that the payments were for principal.

DEAR BENNY: My wife and I received a notice of default naming a certain mortgage company as the originator. Freddie Mac is the actual owner now, and is serviced by a national lender, but Freddie Mac is not mentioned at all in the notice.
I received a “copy” of the promissory note and do not know where the original is. After reading your column, I think the note has been securitized. I am going to call the lender’s attorney and ask if he will agree to file a judicial foreclosure so I can do some discovery.
I am an attorney and have been tossed around for almost a year. (The lender) wants me to do an “Obama package” and has given me a very short deadline. Although I do some real estate law, I know nothing about foreclosure law. --Ralph

DEAR RALPH: Good luck in getting the lender to agree to a judicial foreclosure. What’s the incentive? The lender clearly does not want to spend a lot more time and money getting involved with litigation that it initiates.
What is a “judicial foreclosure”? Let’s look at some basics. When you obtain a mortgage loan, in most states you sign two important legal documents: (1) a promissory note (this is your “I owe you” to the lender), and (2) a deed of trust.
This is a document whereby you give a deed, in trust, to a person or legal entity selected by your lender. That person or entity is called a “trustee.” The deed of trust is recorded among the land records where your property is located.
Under the terms of that trust deed, if you make your payments promptly, are not in default, and ultimately pay off the loan (either by way of a sale or a refinance), the lender will advise the trustee that the loan has been paid in full, and the trustee will prepare and file a release on the same land records.

Consumer alert: When you pay off your mortgage loan, you must make sure that the release (sometimes called “satisfaction”) is, in fact, recorded among the land records. Otherwise, when you go to sell or refinance again, you will have to deal with that old mortgage.
But if you are in default, the terms and conditions of the trust deed gives the trustee the authority to sell your house. The trustee does not have to go to court; he can arrange an auction. In some states it is done right in front of the property; in others, the foreclosure sale is conducted on the courthouse steps; and in some jurisdictions it is handled by a professional auction company.
Regardless of where the sale takes place, it does not involve court action. This is known as a “nonjudicial” sale. When deeds of trusts are involved, most foreclosures take place this way, although some states specifically require some court involvement before the property can be sold.
A few states still use a mortgage document, instead of a deed of trust. In those states, a foreclosure can take place only under the supervision of the courts.
Instead of asking the lender to institute a lawsuit, I recommend that you immediately file a lawsuit to enjoin the foreclosure sale. This way, you will be able to take discovery (this means that you can ask the other side to produce all of its documents relating to your loan, and you can require the other side to answer questions under oath before a notary public court reporter).
My column is general in nature. Accordingly, my readers should consult their own counsel to determine the applicable laws in their own jurisdictions. You may also find a lot of good information on the Web, by typing “foreclosures by state” into your favorite search engine.

DEAR BENNY:
I have never built a deck on my home because the hot sun shines there the majority of the afternoon. Will the lack of a deck have any effect on the sale of my home, since most of the homes in my development have a deck or sun porch? --Howard

DEAR HOWARD: For those of us old enough to remember this phrase: “That’s the $64,000 question!”
There is no easy answer to your question. My first reaction is that if other homes in your development have a deck or a sun porch, this will impact on the value of your house. But if you have to spend $10,000 or more to add a deck (or sun porch) to your house, will you recoup all of that money when you sell?
I was curious and wanted to get some statistics. When I searched “real estate value of improvements” on the Web, I found an interesting chart from Zillow.com.
I make no endorsement one way or the other about this company, but only refer to it because it had some helpful information. According to Zillow, there is no national standard; each state is different. Obviously, a sun porch in Florida should have more value than one way up north.
But, as of 2007, if you paid $10,327 to add a 16-by-20-foot deck, including a complete railing system, you would recoup (on average) only $8,792, or 85.1 percent of your cost.
Does it pay to spend this money? Perhaps. Potential homebuyers may be turned off from your house when they see that you are the only property without a deck.
I suggest you talk with a number of professional real estate agents who are familiar with your area. They should be able to give you a “ballpark” estimate as to the value of your house with (and without) that deck.

DEAR BENNY: I am selling my house and taking back financing. My buyer wants an amortization table. What is that and how do I get one? --Carol

DEAR CAROL: An amortization table shows you and your buyer how much is owed on a monthly basis, assuming that the buyer makes the same payment each and every month. It also can tell you what the monthly payment has to be in order to pay it off in full on the due date, whether that date is five, 10 or even 30 years.
You can find a number of websites by typing “amortization table” into your favorite search engine. My favorite is “The Mortgage Professor” (www.mtgprofessor.com) where you will find a lot of helpful information.
You can also buy an amortization book from a commercial bookstore, but if this is your only transaction it probably does not pay to spend the money.

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