Saving on mortgage costs
For most homeowners the biggest bill is probably their monthly mortgage expense. My question to you is, would it give you peace of mind if you could trim this cost and also perhaps shorten the life of your mortgage loan? This can be executed by playing the numbers game and by making strategic actions.
This article is based on a few hypothetical factors. Your savings will vary by your actual loan facts and the timing of the change.
- $200,000 mortgage
- Fixed rate mortgage 30-years
- Interest rate at 6%
- Monthly principal with interest is $1,199.00
- Bi-Weekly Payments:
By putting half of your monthly mortgage payment into an account every other Friday or on your payday will allow you to pay bi-weekly. Then each month pay your mortgage off from that account. At the end of the year you would successfully made 26 half payments, which is 13 full payments throughout the year. This strategy will allow you to make an extra payment toward your principal. For the most part, homeowners manage this separate account themselves but there are a few companies that you can sign up to that will act as an escrow service and manage the monthly payments for you. Before you sign up to these services you should see what are the fees and see if those fees will benefit you in the long run.
Your savings: $47,000
- One Extra Payment Each Year:
Some people find it easier to save periodically throughout the year a total of one-month mortgage versus a bi weekly payment. These extra payments are applied automatically to your principal of your mortgage. When you make extra payments two miraculously things occur at the same time. The first thing that occurs is your remaining balance drops and secondly you will not have to pay interest each month on that principle for the remainder of the loan term.
By making one extra payment of $1,199 each year by applying it your principal, you could shave off 5 years of your loan and save $47,000 of interest! I mean who wants to give away hard earned money?!
- If Possible Reduce Your Assessment: You won’t believe how many people miss this opportunity to save a little bit money. Depending what county you live in property taxes can cost thousands of dollars each year. If you have any assumptions that your home’s value has decreased in the last year and if it was possibly not accounted for in your tax assessment, you have the right to petition your assessor and fight for a evaluated assessment. If you win your case of lowering your tax assessment it will proceed to a lower yearly tax bill.
Your savings will vary. This all depends on your local tax rate and also by your home adjustment. But you can be save hundreds of dollars each year.
- Eliminate Your PMI:
PMI also known as Private Mortgage Insurance is something very common if you received a mortgage and the down payment was less than 20 percent. Once your balance falls below 80% of the homes appraisal value you can petition your lender to cancel the insurance. The two most common situations where this occurs, is when your home’s value has gone up or you have repaid enough to make the principal below the 80% homes value. To make this happen it may require you to get a brand new appraisal but it could shave a few hundred dollars off your monthly payment.
If you were to put down 5% and had a PMI rate of 0.78, you could save $130 per month, which equals to $1,560 in savings that can go towards your principal.
- Modify Your Loan:
When we least expect it a hardship may occur in our lives and you may be in a position where your monthly mortgage payments start to run late. You should be transparent with your lender and let them know what is going on. You could qualify to modify the terms of your loan (such as terms, principal balance, and even rate) to make your housing cost more affordable. The main goal of these programs is to allow borrowers to be able to stay in their homes and to continue to make their monthly payments. Not everyone will qualify for these programs, but if by a chance you do qualify, you can save a lot of money. If you want to find out if you qualify for these programs you need to call the servicer of your mortgage or you can go here: makinghomeaffordable.gov
- Refinance Your Home:
Last but not least, the most common way to save money on your real estate mortgage is to refinance to a lower interest rate. If you are able to reduce your interest rate, that will lower your monthly payment and to help you save on interest payments. The only thing you need to keep in mind is to do due diligence when executing this strategy. There are costs associated with refinancing, so you need to be sure you are able to cover the refinancing fees. If you were planning to stay at the same home for another 5-10 years, then I would personally consider refinancing your home.