Saving Money On Mortgages

Buying a home is probably the single most expensive purchase you will ever make, but there are ways that you can save money on your mortgage, even before you actually obtain one! In fact, before you sign your mortgage papers with the lender you are considering, why not try negotiating? They may be able to provide you with a lower interest rate, or waive some of the fees including the preparation fees, attorney fees, appraisals, credit report fees, etc. The fees are how the mortgage lender makes their money, but there is room for negotiation on many of them and could wind up with you receiving better terms and less fees. One of the most beneficial things you can do to save money on your mortgage is to select the right type of mortgage. Many people get the traditional, 30 year fixed rate mortgage- since it is the most “well known” of mortgages and probably the one that lenders push for. A 30 year mortgage will cost you the most money out of all the mortgage types, unless you are someone who plans on living in the same house forever. The fact is, most families and individuals who purchase a home have no intention of living in it for the rest of their lives as was typical in years past. In modern society, families often start with a “starter home”, with plans on moving to a new location or a larger home in a few years as their income increases. If you believe you are going to be moving in 7 years, or if you have reason to believe your income will drastically increase in a few years time, consider the balloon mortgage. There are many options other than a 30 year fixed rate mortgage, and they just might fit your particular lifestyle better and enable you to save more money. One way to save considerably on the amount of interest you pay on a mortgage is to make additional payments. When you pay more than the amount due on a mortgage, you are making payments directly on the amount borrowed- the principal value of the loan. You actually can reduce the length of time you pay on a loan by about 10 years by making one additional mortgage payment each year. There are online mortgage calculators that you can use for free in order to see the impact of an additional payment each year, as well as the effect of sending just an extra $50 or so dollars with each monthly payment. Along those same lines, there are loan lenders who will allow you to make bi-weekly payments rather than once monthly payments. You make the same dollar amount in your payments, but you end up making an additional payment per year on a bi-weekly payment schedule. If you purchase your home with a 30 year fixed mortgage, and you pay bi-weekly payments, you’ll pay the entire mortgage off in under 24 years. Think about your points. Sometimes, paying points on your mortgage results in money savings, and other times it results in unnecessary costs. There are points calculators you can use for free (online or through the software program, Quicken) that enable you to check how the points you pay impact your mortgages monthly payment and interest rate. Whenever possible, to save money on your mortgage you want to be able to put 20% down on the cost of the home. A 20% down payment allows you to avoid paying private mortgage insurance (PMI). If it is not possible to put 20% down, then keep an eye on your equity as you make payments, and as soon as you hit 20%, make sure your lender drops the PMI payments.