Getting the lowest monthly payment is understandably the top priority of most home buyers as they look for a mortgage. However, looking at how much it’s going to cost you over the long term, in both interest payments and fees is an even better idea. You can save a significant amount over the years by looking at these costs.
Even if you already have a mortgage, there are still a number of strategies you can use to reduce the total amount of interest you’ll pay. Most of these accelerate the speed with which you repay the loan, and that reduces your long-term interest costs.
If you want to reduce the long-term cost of your mortgage, then here are several ways you can do so.
Compare offersGetting offers from several lenders when you’re shopping for a mortgage is always a good thing. It is possible for offers to vary substantially. In case your credit is considered as sub-prime then you should not accept a high-interest rate mortgage without looking for a better offer.
Try to consider fees One factor that increases the cost of your mortgage is the fees or points lenders add onto the deal. Look at these carefully, and don’t be reluctant to challenge fees that seem too high. To compare offers, you can use the annual percentage rate (APR), which includes both the interest rate and the fees.
Shorten the term If being in the house for some time is what you intend to do, then your interest costs can be lowered substantially by choosing a shorter mortgage term. By doing this, you will increase your monthly payment but it will also enable you to save significantly over the life of the loan. There is also the chance that it will enable you to get a reduced rate on the mortgage. For instance, if you choose a 15-year term at 5.75 percent versus a 30-year term at 6 percent, then you can save $66,364 over the life of a $100,000 mortgage.
Why you should pay bi-weekly Paying your mortgage every two weeks is a good idea instead of paying it monthly. While you will hardly notice the difference, this can still cut the amount of interest you pay since your principal decreases more steadily. And, since there are 26 two-week periods in the year, you actually make an extra monthly payment each year, further shrinking the principal.
Cut the PMI Having a down payment that is less than 20 percent of the house price would mean that you may be required to take out PMI or private mortgage insurance. However, once your mortgage principal decreases to 80 percent of the home’s value, you can petition your lender to cancel the insurance. This may happen after you’ve repaid some of the principal, or if the home’s value rises quickly. While savings should make the expense worthwhile, you may have to have the house reappraised.
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