How To Save Money On Your Mortgage

Understandably, when most home buyers look for a mortgage, their top priority is to get the lowest monthly payment. But it’s a better idea to look at how much it’s going to cost you over the long term, in both interest payments and fees. By looking at these costs, you can save a significant amount over the years.

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.

Here are some ways to reduce the long-term cost of your mortgage:

Compare offers
It always pays to get offers from several lenders when you’re shopping for a mortgage. Offers can vary substantially. Especially if your credit is considered sub-prime, you shouldn’t accept a high-interest rate mortgage without looking for a better offer.

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. Compare offers using the annual percentage rate (APR), which includes both the interest rate and the fees.

Cut the PMI
If your down payment is less than 20 percent of the house price, you may be required to take out private mortgage insurance (PMI). 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. You may have to have the house reappraised, but the savings should make the expense worthwhile.

Shorten the term
If you intend to be in the house for some time, you can lower your interest costs substantially by choosing a shorter mortgage term. This will increase your monthly payment but enable you to save significantly over the life of the loan. It may also enable you to get a reduced rate on the mortgage. For example, you can save $66,364 over the life of a $100,000 mortgage by choosing a 15-year term at 5.75 percent versus a 30-year term at 6 percent.

Pay bi-weekly
Consider paying your mortgage every two weeks instead of monthly. The difference is hardly noticeable, but this can 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.