When it comes to saving money on your mortgage, there are two areas where you can save. The first is when you initially purchase your home and sign off on a mortgage. In this phase, you will have the opportunity to shop for the most competitive rate, and save money as a consequence. The second savings occurs once you already have the mortgage in place, and are paying down the principle. There are several different strategies you can implement to speed up the payoff, saving you money in the process. Let’s examine each of these ways to save money on your mortgage in more detail.
When it comes to learning how to save money on your mortgage, the first way to save is by picking the best mortgage available to you. There are several different ways to go about this. It can be difficult to compare different mortgages side by side, as the origination fees and points can differ from company to company. Also, be sure to discover the closing costs of each potential mortgage which you are considering. Closing costs are the largest upfront fee, and they take the longest to recoup, so be especially wary in this area. Paying points can be complicated, but the rule of thumb is they will save you money only if you stay in your home for a long period of time.
The single biggest factor which will affect how much you end up paying over the life of the loan is the interest rate itself. You want to get the lowest rate you can, provided that the upfront fees are reasonable. Don’t overpay in closing costs for a small decrease in the interest rate, as it will take you years just to break even.
Now that you’ve chosen a home mortgage, how can you continue to save money? The second way you can save money on your mortgage is by paying it off in the smartest manner possible. There are many techniques you can employ to save you tens of thousands off your interest bill.
The single greatest way to save money on your mortgage is to make one extra payment a year. While this sounds rather insignificant, doing so will allow you to pay off a 30 year fixed rate mortgage in only 18 and 1/3 years! How can this possibly be? The secret lies in the compound interest that is always working against you. During the first years of your mortgage payoff period, you are paying virtually nothing towards principal. That means your monthly payments are only going to service the interest on your debt. You are essentially treading water.
However, if you make just one extra payment for the year, the entirety of that payment will be applied to the principal. As you lower the principal, the interest you owe lowers as well, speeding up the payoff process exponentially. If you do nothing else, implement this one simple step and you will save nearly half of the total cost to repay your mortgage. Be sure to write “apply solely to principal” on your extra payment check.
You may want to add even more ways to save. Another strategy that you can utilize in conjunction with making an extra payment, is to pay your mortgage bi-weekly. Many mortgages are paid monthly, and the interest accrues for the entire month until you make your payment. However, a bi-weekly payment allows you to lower that interest every two weeks. This can add up to a startling difference over the life of your loan.
Be careful though, because some companies will charge you a fee to switch over from a monthly payment schedule. Also, you have to ask if they will lower the interest bi-weekly as well, as some will not. With such fine print loopholes, it is often better to make bi-weekly payments on your own. Simply send in half of the monthly amount due every two weeks, then check to make sure they are applying any leftover from paying the interest to principal.
Now you know how to save money on your mortgage. Using these straightforward techniques will save you a bundle in the long run. Just one strategy alone can cut your mortgage nearly in half! So, start paying smart today and you will be rid of that mortgage before you know it.
