Tips to Save on Your Home Loan
Like most people, the most expensive payment you must make each month is your mortgage. While no one looks forward to making this payment, each one you make is one step closer to a secure financial future. Remember, your home is more than just a place to live. It’s an investment that, if used properly, will help you provide security for yourself and your whole family during retirement, for making large purchases, or to repay credit card debt.
Even though this is the case, you probably don’t want to pay more than you have to for your home. You may wonder – how can you save on your monthly mortgage payments?
No matter if you have a traditional home mortgage or a VA home loan, use the tips and information here to start saving right away.
Make Bi-Weekly Mortgage Payments
Making a mortgage payment every two weeks adds one, all-principle (no interest) payment to the mortgage every year. Rather than taking 12 payments a year, bi-weekly payment plans require a payment every two weeks, which means you are making 13 payments a year. The additional payment that you make every year will be applied only to your principal, which means your interest will be reduced because the principal is reduced. Also, the more principle you pay, the faster you can build equity in your home.
With this arrangement, you reduce the amount of interest building up during your 30- or 15-year mortgage. In the end, this can lead to several years being eliminated from the term of your loan.
Make sure that your mortgage provider allows you to make bi-weekly payments and that they won’t charge a fee if you do this. The fees can add up and result in minimal benefit for you. Also, ask if the bi-weekly payment will be applied when it is received or held until the end of the month or the end of the year. To see the benefit of this payment scheme, the amount should be applied when it is received.
Use the Equity in Your Home Wisely
Your home is much more than a home (as mentioned above). It is an investment that you can use to help you pay off debt sooner and at a better rate, save on monthly payments, and help to secure your future.
While paying your home off quickly is great for some people, it isn’t always the best option if you have high interest credit card debt.
You may not realize that high-interest credit card debt costs more to repay per dollar than your home. For example, if you have $15,000 in credit card debt, making more payments toward your mortgage doesn’t make sense. If you pay more interest on your debt than your mortgage, you will pay more on this debt as time passes.
The solution to this is to use your home’s equity to repay your debt faster and with minimal interest. One option to consider is a cash-out refinance. With this, you refinance your mortgage and receive a cash payment for the equity in your home. The cash can be used to repay your credit card debt and then rolled over into your mortgage payment, which will be provided at a much lower interest rate (in most cases). This also gives you the convenience of making a single monthly payment and can help you increase your credit rating if you hold a large amount of debt on your credit cards.
Drop PMI (Private Mortgage Insurance)
If you used a conventional mortgage to finance your home, but you did not put down 20% of the total purchase price, there is a chance you are paying PMI. While it may not have seemed like that big of a deal when you got into your dream home now that you are a few years into paying it, the cost may be adding up quite a bit.
There is some good news – you can ask your lender to cancel the insurance if your mortgage balance falls under 80% of the total appraised value. This happens if your home’s value has increased or if you have repaid part of the principle. Keep in mind, to do this, you will need an appraisal to confirm the value of your home. After this is done, though, you can eliminate PMI payments.
Steps to Reduce Your Mortgage Payment
As you can see, there are more than a few things you can do to reduce your monthly mortgage payment. Keep the tips and information here in mind, which will help you save money now and for the life of your loan. Being informed is the best way to ensure that you don’t pay too much and that you can save money over time. While your house does require an investment, it is one you can save money on if you are smart.
