Owning a home is no small undertaking — on any level. There’s the glamorous part where you can decorate however you want (finally!), there are no more rental agreements and landlords to deal with, and no upstairs neighbors will be moving furniture at 1am. But then there’s also…
Cue mountains of paperwork, and a seemingly endless series of questions about refinancing, mortgage interest rates, and home equity – especially if this is your first mortgage. It can all feel a bit daunting, but there are a few things you should know. Ok, there are a lot of things you should know. But these things could save you money in the long run. Who doesn’t want that?
Have a look at our tips for saving money on your mortgage and see where you can make some adjustments.
Make an extra mortgage payment every year
When your mortgage loan payments are calculated, the interest and principal payments are broken into twelve. If you pay an additional payment each year, that money is only applied to reducing the principal of the loan. Over the course of a 30 year, $200,000 mortgage, that could save you close to $50,000 in interest! Saving money on mortgage interest is by far the easiest way to use your hard-earned money for something more exciting.
Make bi-weekly mortgage payments instead of monthly
This accomplishes the same savings as making one extra payment per year but spreads it out a bit more. There are a number of ways to accomplish this, but it can be as easy as creating an automatic savings account that deposits half of your monthly mortgage payment every other week. Then when it comes time to make your monthly payments, some months you’ll have extra! There are companies that you can hire to manage this, but modern banking makes the process pretty straightforward. You just have to remember to transfer the money to make your monthly payment on time!
Renegotiate your private mortgage insurance
Unless you make a downpayment equal to 20% of the cost of your home, many homebuyers are forced to pay for private mortgage insurance or PMI. This can cost hundreds of dollars every month on top of your mortgage payments. Some lenders will allow you to cancel this insurance once your loan balance falls below 80% of your home’s appraised value. This can be tricky if your home value keeps going up, but making a few significant payments towards your principal can help. Ask your lender about this option.
Save money by refinancing your mortgage
One of the more confusing ways to go about saving money on mortgage payments is to refinance and get a lower interest rate. This will help you by not only saving money on mortgage payments but by decreasing the amount of interest you pay in the long run. Some advisers say it’s best to refinance if you will decrease your interest rate by 2% or more, while others say that even 1% is a reason to refinance. Talk with your lender about any fees that will be tacked on to the refinancing process to make sure you’ll ultimately come out on top.
Switch to an ARM mortgage
If you are currently in a fixed-rate mortgage but don’t plan to stay in your home for more than five years, switching to an Adjustable Rate Mortgage might get you a lower rate. The hitch with ARM mortgage loans is that after five years, the rate becomes variable and fluctuates with the market. If you are unsure about how long you intend to stay in your home, this option can be a bit risky. But it might just motivate you to make moves when your five years are almost up!
Saving money on your mortgage takes some planning and investigation, but it’s worth it in the long term. Just think about the day when you’ll be paying less than you were when you were renting and all those calculations will seem like an easy exchange!
Are you moving into a new home? Let us help you move! Get a guaranteed moving quote and see how we can save you money there, too.