Save Money on Your Mortgage
Buying a house is still an attainable part of the American Dream for most people. Many choose to save for the down payment and then get a mortgage to make the purchase. For most, the monthly mortgage payment is the largest monthly expense they have.
When you’re looking for ways to save money, it’s always a good idea to look at your largest expenses first. Saving just a small amount on those big bills can make a noticeable difference in your overall budget.
To that end, here are some mortgage loan tips that can help you save money:
Seek Assistance With Your Closing
Buying a home is an investment, as opposed to paying rent, so the sooner you can begin investing in your own home, the better off you’ll be. There are organizations that offer assistance with things like down payments and financing to get you into homeownership sooner.
Find out if you qualify for a first-time homebuyers’ grant that can help you with the down payment and closing costs. There are also special programs for veterans, teachers and low-income families — and if you want a home out a little farther out in the country, the USDA offers assistance as well.
With help on your closing, you might be able to avoid paying penalties or higher lending fees due to credit issues or insufficient capital.
Add an Extra Payment Each Year
This is one of the best mortgage payments tips that no one ever tells you about. Mortgage payments are set based on an amortization schedule that calculates a portion of the principal and a portion of the interest to be paid each month. The interest you pay is based on the remaining principal, so it fluctuates during the life of the loan.
When you sign the loan agreement, the lender can tell you how much each monthly payment will be and how long it will take to pay off the mortgage.
Adding an extra payment might not seem like a lot, but it has a cumulative affect. The extra payment goes directly to offset your principle, since your regular payments cover the interest for the year. By reducing your principle, you lower the amount of interest you owe for the rest of the mortgage.
If you do this each year, it will shorten the time it takes to pay off your mortgage by years.
Another way to achieve savings in your mortgage is to pay every two weeks. Instead of paying monthly, pay half the amount of a monthly payment every two weeks. It sounds like it would have the same effect, but in fact you end up making the equivalent of 13 payments in a year.
When you divide 52 weeks in a year by 12 months, you get more than 4.3. The 0.3 part adds up to another mortgage payment by the end of the year.
Get Rid of Your PMI
Private mortgage insurance is a fact of life for many mortgagees. After closing, most people forget all about it. PMI is only required for as long as your mortgage is more than 80% of your home’s value. When this drops below 80%, you can ask your lender to cancel the PMI. That could save you hundreds of dollars each month.
Depending on the value of your house and how much you mortgage, that threshold could be met at any time. If you renovate your house and add value, you could meet it. Or, if you pay down your principle, you might reach it that way. It’s up to you to monitor the value of your house and the unpaid principle on your mortgage to notice when you’ve surpassed the 80% threshold.
Reset Your Loan
This savings technique will lower your monthly mortgage payment. Resetting or recasting your loan is something you can ask the lender to do when you make additional payments on the principle. If you have a 30-year mortgage, for example, and you pay down your principle by one extra payment each year, you’ll have the mortgage paid off in under 30 years.
You could go to the lender and ask to have your mortgage reset. Instead of continuing to pay the same amount each month and shorten the lifetime of your mortgage, they could agree to reduce your monthly payment and allow you to continue to pay for the whole 30 years.
When interest rates fluctuate, you could take advantage of the savings if you refinance. Refinancing means you negotiate new terms for your mortgage. Taking the current value of your home, the amount of money you still owe on the mortgage and the best interest rate available, you could end up with a substantial savings.
In a refinance, you usually don’t have to pay any of the penalties you may have been subject to initially for a small down payment or credit issues. Depending on the new terms available to you, you may choose to reduce the term of the loan or reduce the amount of your payments. You can take your savings either way.
Use Mobile Notary Services
Getting a mortgage involves gathering information and filling out forms. The closing can’t go forward without all the proper documentation, most of which needs to be notarized. Engaging a mobile notary service for your closing can reduce your stress by half and assure a smoother transaction. Documents will need to be signed and notarized.
With a mobile notary service, this step can be accomplished without anyone leaving the room.
Mortgage Down Payment Tips
In addition to these money saving tips for your mortgage, there are some mortgage down payment tips that can save you money, as well.
The best tip for your mortgage down payment is to make it as large as possible. That may not sound like a way to save money, but it is. Think of your house as a savings account. The money you put into it will come back to you with interest when you sell the property.
A large down payment tells lenders you’re serious about the purchase and financially responsible. The more you’re willing to contribute to the purchase in the form of a down payment, the less risk they’re taking. Also, a large down payment reduces the amount of money you need to borrow for the purchase. A smaller mortgage means smaller monthly payments or a quicker path to owning that house outright.
Owning a house is a financial responsibility that usually begins with a mortgage. With these smart tips, you can pay off your mortgage faster and be that much closer to financial freedom. A mortgage is a big expense, but saving money on it can help it seem more manageable.