How to Save on Mortgage
How to save on Mortgage. Your house almost certainly your largest investment. How to reduce mortgage payments?
Your house is almost certainly your largest investment. Many mortgage lenders suggest that if you qualify for a mortgage, you can afford that loan. They attract you with minimum down payments as low as zero percent. Here’s where most people make their costliest mistake: they forget that with a minimal down payment, their mortgage payments can be extremely costly.
Private Mortgage Insurance
Private Mortgage Insurance applies when your down payment is less than 20%. It protects the lender against the possibility of default, and usually costs you 0.05% of the mortgage payments.
However, one little known secret around this is that you can use piggyback loans. In this type of loan, you borrow from two lenders, effectively avoiding the PMI. Unfortunately, this also means that the second loan will be made available only at a higher interest rate.
How much does your house actually cost?
How to save on mortgage? First determine your actual current financial situation. Many people assume that if they can afford their current rent, they can afford to make mortgage payments equal to their current rent. Unfortunately, this is not the case; being an owner carries much higher ‘hidden’ costs than being a tenant. As an owner, your costs also include maintenance, property insurance, property taxes, PMI payments – to name just a few. The physical upkeep of your property can be very expensive: roof repair, paving, snow removal, purchasing lawn equipment, chlorinating swimming pools, among many other things.
There are also significant initial costs that you should consider. Initial renovation costs can sum up to several thousand dollars. If you are moving into a new house, you will bear all the initial furniture, renovation and utilities costs; if you are moving into an older house, you will probably need to replace many of the existing electrical appliances and pay for minor repairs that can sum up quickly.
How to reduce mortgage
Get the best interest rates
How to save on mortgage? The higher your FICO score, the lower the interest rates you are eligible for. You need to make sure your FICO score falls within the top range in order to get the best interest rates. The difference between the top range and the bottom range can be as large as 4%; especially for big ticket items such as a house, this translates into a difference of several hundred dollars in monthly payments, and a few hundred thousand dollars in interest in total.
Pay off your mortgage early
How to reduce mortgage? It is almost always in your best interests to pay off your mortgage as early as possible. Some financial advisors may suggest that mortgage payments entitle you to tax write-offs, but do also realize that your mortgage payment almost certainly represents the largest portion of your fixed monthly expenses.
If you can eliminate this portion of your fixed monthly expenses, you would move a significant step closer to financial freedom.
How to pay off your mortgage early
How to save on mortgage? Do you know that if you just make one more mortgage payment a year (on a mortgage of 8%), you can shorten a 30-year mortgage into a 22-year mortgage?
Whenever you have a significant amount of extra cash available, consider making an additional mortgage payment. The earlier you do so, the less interest you pay on the remaining amount.
Also, remember that the shorter the loan, the lower the interest rate. Not only will you own your house earlier, you will pay significantly less in the long run.