Ways To Save Money On Your Mortgage

Pile of coins

See if you can save some coin on your next home loan!

For many home owners, mortgage payments are their largest monthly expense. Fortunately, there are ways to decrease your monthly payment and pay off your loan faster. Keep in mind, these are merely suggestions and may not work for every homeowner. Talk to your mortgage consultant or financial adviser before committing to any of these practices.

For illustrative purposes, let’s use this imaginary 30 year fixed rate mortgage as an example:

Mortgage amount: $200,000
Term: 30 years
Rate: Fixed, 5%
Estimated monthly P & I payment: $1,073.64

Make one extra payment a year

If you are able, make one additional, full mortgage payment a year. Be sure this extra payment is going toward your principal¬† balance, not your interest. Depending on your loan terms, you may need to request that the money be put toward principal. If you don’t specify, your lender may divide it up as if it were your next regular payment (where a portion goes toward interest and another, usually smaller portion, goes toward principal). By using this money-saving practice, you could save $30,295.45 in interest and shave about 4 years off your loan.

Make bi-weekly payments

This will come out the same as making one additional payment a year. Here’s how: Every other week (say, on your payday) put half the amount of your mortgage payment into a savings account. Each month, pay your mortgage from that account. After a year, you will have made 26 half payments, or 13 whole payments. That’s one extra payment a year. Some mortgage servicers will charge a fee to accept bi-weekly payments so check with yours before starting this type of payment schedule.

Recast your loan

If you can make large payments toward your mortgage principal, you may be able to convince your lender to recast (or reset) your mortgage. Ordinarily, when you pay toward your principal balance, your monthly payments will remain the same but the length of the term will be reduced. If your mortgage is recast, your lender will recalculate your monthly payment based on your new balance. Using our example, let’s say you put an extra $20,000 toward the principal. That makes the new balance $180,000. Using the same interest rate, your monthly payments based on that amount would be $966.28, saving you $107.36 per month.

Refinance your mortgage

You can take advantage of falling interest rates by refinancing your home loan. Depending on the terms involved in your refinance program, you may be required to pay upfront fees, but the long term savings often outweigh the initial cost.

Using our example, let’s say you refinance to a 3.98% interest rate. On a $200,000 balance, that would make your payments come out
to $952.53 per month, saving you $121.11 per month.

These are just a few suggestions on how you can save money on your mortgage. Talk

to a licensed mortgage professional to learn more.

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