How To Save Money On Your Mortgage

 

 Saving money is every home shopper or home owner’s dream. People especially hate paying interest. When you look at the amount of interest you will pay on your 30-year mortgage, it can be astounding. It’s no wonder housing prices go up every year – well, until a bubble bursts anyway. If you consider that on a 30-year $200,000 loan, with a 5% interest rate, you will eventually pay over $186,000 in finance charges, it all makes sense. Thankfully, there are ways around this.

 

1) Have a High Credit Rating – If you have a good credit rating (over 740), you can usually qualify for the best interest rates. This will lower your interest payments. On the loan above but with a 3.5% interest rate, you will save over $63,000 over the life of the loan. That’s a lot of money that could be invested and used for something else.

 

2) Make a Large Down Payment – The larger your down payment, the less the loan principal, and the less interest you pay overall. Not only that; you can usually qualify for more favorable interest rates the more you pay down. Let’s assume you paid $30,000 down for the house described above. This would mean that you only financed $170,000, probably qualifying you for a more favorable rate at 3.45%. In this scenario you’d save over $83,000 in finance charges.

 

3) Pay Payments Bi-Weekly – A really easy way that is almost painless for most folks, is to ask the lender if you can pay your loan bi-weekly. A lot of people get paid bi-weekly so basically you’d pay half of your loan every two weeks on your work salary schedule. This would cause you to pay an extra payment every single year. Using the $200,000 loan value, for 30 years, with 5% interest, by paying your payment bi-weekly you’d save over $33,000 in total finance charges over the life of your loan.

 

4) Get a 15-Year Fixed-Rate Mortgage – Often times if you get a 15-year mortgage instead of a 30-year mortgage, you’ll get half a percentage point less interest. So, you’ll save there, plus you’ll save due to the time value of money. By moving to a 15-year mortgage, you’d lower your interest from 5% to 4.5%, plus you’d save over $111,000 in finance charges. Your monthly payments will go up, but by less than $500 a month.

 

5) Pay Extra Each Month toward the Principal – If you pay $500.00 extra each month on the principal of your loan, using the same numbers above, you can pay the loan off in only 14 years and 8 months, saving you almost $100,000 in finance charges. The reason you save more in the 15-year scenario above is due to the lower interest rate you can get on 15-year loans.

 

6) Refinance If Interest Rates Go Down – If interest rates go down by at least 2% and you can get a low-cost refinance, you can save a lot of money on payments and interest rates. In our $200,000 mortgage example, if interest rates went down to 3% you’d save close to $50,000 on interest and have about a $300 per month lower payment. There are often other fees involved in refinancing, so be sure to factor those in to figure out whether it’s really worth it for you or not.

 

7) Pay Your Mortgage Weekly – Ask your lender to transfer your loan to a daily interest loan, where the finance charges are calculated each day, then ask to pay your mortgage on a weekly basis. Since you would be paying the principal down faster due to the weekly payments and mortgage interest is calculated using the balance of the principal, you’d save over $100,000 in finance charges over the life of a 30-year loan at 5%.

 

8) Send Windfalls to Your Mortgage Principal – If you have the goal to pay off your mortgage early, then when you get windfalls, use them to send to your lender to pay down your principal. Every time you pay down the principal your interest calculation goes down and you will pay less finance charges over the life of your loan.

 

Saving interest on mortgage loans is actually fun. You can combine a couple of the methods above to increase your success. Paying off a home early isn’t for everyone, though. With interest rates as low as they are, it might not be financially beneficial to some people. But for others, the freedom that can come from saving money in such simple and painless ways means that it’s definitely worth doing.