Everyone wants to save money on the cost of owning a home, but very little people know how to save money on your mortgage.
A large monthly expense that many people can struggle to pay, it’s good to know efficient ways of decreasing your monthly payment so that it’s more manageable, and how to pay off your home loan quickly so that you don’t have years and years left on the term.
The Perks of Paying Your Mortgage Early
- You’ll own your own home – the sooner you’ve paid off your mortgage, the sooner you’ll own your own home. This helps to give you peace of mind that it won’t be repossessed if you ever miss a payment on it.
- You’ll save on interest payments – no one likes to lose extra money due to interest payments. But with a mortgage with a longer-term, you’ll lose a substantial amount. Paying off your mortgage early will mean that you no longer have to worry about those expensive interest rates.
- You’ll have more money to enjoy each month – whether you put the money that you’ve saved directly into savings or into something else, you’ll love having an extra chunk of money each month.
So how can you save money on your mortgage? Here are 9 top tips that you can use to help.
Review Your Mortgage Term
If you want to reduce your monthly payments, you can choose to repay your mortgage over a longer period of time. An efficient way of cutting costs, it’s a popular choice with those who are buying their first homes and don’t have the cash for high monthly payments.
However, while this will save you money in the short term, you’ll need to keep in mind that it will cost you more in interest in the long term. Plus, you’ll have to face having to pay for your mortgage for many, many years. Although it might be tempting to take on a 35-year mortgage at first, the reality of how long that really is, may not be appealing to many.
Alternatively, you could refinance your mortgage so that it has a lower interest rate. Helping you to save on interest payments and lower your monthly payments, it’s a viable option – just make sure you’re aware of the costs associated with this option.
Overpay on Your Mortgage When You Can
If you have the extra cash, a way of saving money on your mortgage in the long term is to overpay on it when you can.
By making an extra mortgage payment on it, you’ll not only see a drop in the remaining balance but as it’s applied to the principal and not the interest, you’ll not have to pay interest on it for the remainder of your mortgage term.
Cut Your Budget
If you want to trim your budget, why not try to cancel things that you don’t use anymore – such as streaming services, subscription boxes, etc. From the money that you save on this, you’ll be able to put a little extra towards your mortgage payment each month – meaning that you’ll pay it off quicker.
Develop a Bi-Weekly Payment Plan
Another effective way of paying off your mortgage early is by developing a bi-weekly payment plan. The premise of these is simple. Instead of paying once a month for your mortgage, you’ll pay half of your monthly mortgage amount that’s due every other week.
Although this might sound confusing, it’s easy to understand with an example. Let’s say that your current monthly mortgage payment is sitting around the $1,000 mark. Over a year, you’ll obviously pay $12,000. But if you decide to make bi-weekly payments, this will be split into a $500 payment every two weeks.
When multiplied by 26 (26 payments will be made over the 52 weeks) you’ll have $13,000 instead of $12,000 in total payments. And here is where the magic comes in – the extra $1,000 is applied directly to your principal, which reduces how much you’ll spend on your interest.
Modify The Terms of Your Loan
To help ease the stress of late payments, you might be able to modify your loan’s terms – including the principal balance, term, or rate. This will result in more affordable monthly payments. Of course, before relying on this, you should keep in mind that not everyone will qualify – but if you do then you can save a lot of money.
Reduce Your Private Mortgage Insurance (PMI)
If your down payment is less than 20% then you’ll most likely have to pay Private Mortgage Insurance.
But don’t worry, you can still save hundreds of dollars on your mortgage. How? By asking your lender to cancel private mortgage insurance once the value of your mortgage is less than 80% of your home’s appraised value.
Utilize Your Home’s Equity
Your home is an investment that, when used wisely, can help to save you money on your monthly mortgage payments and pay off any debts quickly.
If you have a high-interest credit card with debt on it and a higher interest rate than what’s on your mortgage you need a solution. This is where utilizing your home’s equity comes in. By doing this, you’ll be able to pay off your debt with less interest accrued.
Lower Your Tax Assessment
Property taxes can cost you thousands of extra dollars each year. This is why if you believe that your home’s value has decreased and it wasn’t efficiently accounted for in your tax assessment, you can petition against it. By lowering your tax assessment, you’ll be able to save a large amount of money.
Reset Your Mortgage
If your mortgage lenders are flexible, they may allow you to reset your monthly payments if you make payments towards the principal. The benefit of resetting your mortgage is that both the interest and the monthly principal are recalculated so you’ll be able to pay less each month.
Another way to save money on your mortgage is to knock out the mortgage payment altogether which is possible through a federally insured mortgage called the Home Equity Conversion Mortgage. This is a special mortgage designed exclusively for homeowners age 62 and older which allows for you to stop making mortgage payments altogether and accrue interest to the loan balance rather than writing a payment structured back to the bank each month. To get an idea of your qualifications visits the free reverse mortgage calculator by RMR.org.
Those are some of the simple and efficient ways that you can save money on your mortgage. What you decide to do, of course, is up to you and will depend on several factors, including how much you wish to spend on your mortgage (i.e. whether you have the capital to overpay) and how long you want the term to be.
Overall, however, by following some of the above and seeking professional assistance from a mortgage advisor, you’ll be able to save money that you can then put into future savings or other investments.