In recent posts, we’ve reviewed how you can get a better rate on your mortgage – and therefore reduce your monthly payment as well as the overall cost of your loan over 30 years – by improving your credit score and paying off credit card debt. But that’s not the only way to save money on your mortgage. Other strategies require little to no sacrifice at all!
Read on for advice provided by the experts.
Bi-weekly versus monthly payments
Traditional loan schedules require a mortgage payment once a month. But many lenders offer a biweekly payment option that helps pay off your mortgage faster with half payments twice a month. Doing that every two weeks adds up to one extra payment annually, which goes toward the principal balance on your loan. For many homeowners, a smaller payment twice a month is easier to budget, especially if you schedule the mortgage due dates to coincide with payday.
Avoid PMI interest
Private mortgage insurance is typically required when home buyers have less than a 20% down payment on the mortgage. That’s because lenders taking on more than 80% of the risk want to protect themselves if you default on the loan. PMI adds an additional cost to your overall loan, so having enough money saved for at least a 20% down payment is ideal.
You can see why potential first-time homebuyers could find themselves with a challenge when they find their dream house, want to take advantage of low interest rates, but don’t have the 20% to put down and avoid PMI. If they have good credit, it’s worth shopping around for a lender that might waive PMI with a low down payment.
You can also reduce and eliminate PMI interest over time by calculating your home’s value compared to what remains on your mortgage. When you have at least 20% equity in the house, you may remove PMI from the balance of your payments.
Pay down the principal
Consider paying more on your regular mortgage payments, even as little as $50 per month, toward the principal of your loan. Homeowners are surprised to find this can reduce the number of years on your mortgage, as well as reducing the overall total of interest you pay.
If you choose not to add to your mortgage payments throughout the year, you’ll get the same benefit by making a large lump-sum payment toward your principal each year. That could be a percent of your annual bonus from work, tax refund, or any other occasion you might have cash not earmarked for any other expense.
The most common way people save money on a mortgage is by refinancing to a lower interest rate. Reducing the rate on the loan can lower your monthly payment and help you pay less in interest. It’s important to understand there are costs associated with refinancing; it’s best to consult with your lender to see if it makes sense for your situation.