These 10 tips can save you tens of thousands of dollars over time.
Mortgages are a good thing; after all, most of us could never buy a house without one, even in the most accessible markets. But when you sit down, squeeze the numbers and see exactly how much interest you are paying for your loan, having a mortgage can sometimes seem a bit oppressive. And we haven't even mentioned the 30-year commitment.
But the good news is that there are easy ways to drastically shorten that term and save tens of thousands of dollars in the interest you end up paying. Here are ten easy ways to control that mortgage, so it doesn't control you.
1. Make extra payments
If you can raise the money to make an additional mortgage payment (or two) per year, you will pay huge dividends in the future. This is because your additional payments go to your capital, not interest. And since you are reducing the balance of your capital, you will also pay less total interest.
This strategy is especially powerful considering how mortgage payment programs are structured; In the first part of the loan, the vast majority of the payment of your mortgage goes to interest, that is, paying the bank. This is because every mortgage is a risk, so they want to get their money as soon as possible. This relationship changes during the life of the loan, until, in the end, most of each payment is paying the principal. This is known as amortization, and you can use simple calculators to calculate how much you pay in interest versus principles. Your mortgage balance does not drop steadily, at a uniform rate; It is a gentle slope that, towards the end, falls almost in a straight line.
Making additional payments, at the beginning of the life of the loan, helps eliminate that capital much faster than it would otherwise decrease.
2. Delete your PMI
If you pay less than 20%, your lender probably requires that you have private mortgage insurance (PMI). This adds hundreds of dollars to your monthly budget, but the good news is that you only have to charge it until your mortgage balance reaches 80% of the appraised value of your home. Whether you arrive there paying the principal (hopefully making those additional payments) or by thanking, you should contact your lender to cancel your PMI as soon as you reach that threshold.
3. Change your mortgage payment
Remember when we said making additional payments is a great way to reduce your capital? Usually, when homeowners reduce their capital faster than scheduled, it shortens the term of the loan; will pay in, say, twenty years instead of the full thirty. But there is another way to play it.
Re-launching or restoring your mortgage preserves the term of your mortgage and, instead, adjusts the amount of your mortgage payment. Then, instead of paying in twenty years, you will pay thirty years, but your monthly payment will decrease, significantly, in some cases. Following this route can free up a lot of cash for your monthly budget.
Of course, the disadvantage is that you are paying the mortgage for more time and paying more interest. However, for households struggling to make monthly payments, it is a good option.
4. Challenge your property assessment
Property taxes are the nightmare of the existence of all homeowners, a nuisance that can add thousands of dollars a year. Since property taxes are calculated by multiplying the local tax rate by the appraised value of your property, the best way to keep your tax bill under control is to closely monitor your property assessment.
When you receive your evaluation letter, review the basic information immediately and make sure everything is okay. Even something as small as adding a non-existent room or fireplace can increase your evaluation. If you think your evaluation is too high, look for comparable properties in your area and verify your evaluations. You can also hire a private advisor to give you a second opinion.
Just remember: if you decide to protest your evaluation, move quickly. Most municipalities have a time limit on how long they can participate in a challenge.
Refinancing your mortgage at a lower interest rate can help you drastically reduce your monthly payment; Just keep in mind that you will have to pay refinancing fees. Carefully calculate your savings against the money you will have to spend to refinance, to make sure you will get ahead in the long run.
6. Loan modification
If you qualify for the loan modification, you can change the terms of your mortgage to make it more affordable. Potentially, it could extend the term of the loan or even reduce the interest rate or the balance of capital.
The capture? There are none, except not all are eligible. Loan modifications are intended for people experiencing financial difficulties. To successfully modify your loan, you must provide extensive documentation that demonstrates that you cannot pay your current mortgage, and possibly even go through a trial period to make sure you can pay the mortgage on your modified terms.
7. Reduce the size of your home
Although this is a big step, selling your home and using the cash to reduce its size to a less expensive home could completely take it out of your debt. Since your subsequent home will be ideally financed with the sale of your current home, you will want to find ways to keep every penny possible. An easy way to do this is to use a low commission discount broker; After all, the standard 6% commission is almost always the largest individual expense for home sellers.
Even if you have to take a small mortgage in your new home, your financial situation will still be significantly improved.
8. Use your home to pay high interest debts
Your home does not have to be an end, it can also be a means. If you have many high-interest credit card debts, it may not make sense to invest extra money in your mortgage. After all, while paying your relatively low interest mortgage, your high interest debt is accruing interest. You have to look at the big picture.
One way to address this type of situation is to make a cash withdrawal refinance. You will get a lump sum of money that you can use to pay off your high interest debt, basically consolidating it and doubling it at the much lower interest rate on your mortgage.
9. Explore an ARM
If you do not plan to stay in your home in the long term, switching to an adjustable rate mortgage (ARM) could pay big benefits. An ARM offers a very low interest rate during the first five years, and then changes to a variable interest rate that is linked to the preferential rate. But if you do not plan to stay in your home for more than five years, that eventual rebound will not matter, and the lower initial rate can save you hundreds of dollars a month.
10. Budget, budget, budget
There are many ways to save on your mortgage that do not strictly imply your mortgage. Carefully cutting all the fat from your monthly budget can generate several hundred dollars a month more than you can put in additional loan payments. How? Some popular methods of budget reduction include bringing your lunch to work, making coffee at home instead of going to Starbucks and canceling monthly subscriptions. Although it may hurt a little now, it will be worth it in the long run.
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