Buying a home is a significant investment. Whether you’re a first-time buyer or you’re refinancing your home, saving money on mortgage payments means you’ll be financially ahead. Here are seven tips to cut your mortgage costs.
- Get a competitive rate. To get the best rate, you have to shop for a mortgage. Lenders will frequently give a discount off the posted rate, sometimes as little as a quarter of a percentage point up to a full percentage. Even a small difference in the rate will make a big difference in your monthly payments. Compare rates by contacting several financial institutions. The Internet can be a great first contact in obtaining up-to-date information on rates and terms quickly.
- Make your down payment as large as possible. Providing the largest down payment you can possibly afford will reap exponential rewards down the road and savings in overall monthly payments.
- Reduce the amortization period. Shortening the loan repayment period or amortization period is a great way to pay your mortgage off quicker. It will result in higher monthly payments, but will make big gains in building up your equity and allow you to pay less in total interest over the life of the mortgage.
- Review prepayment options. A prepayment option allows you to pay part of your mortgage principal before it is due, thus reducing the amortization period. Restrictions usually apply and can include a prepayment penalty. As well, prepayment is often limited to specific amounts and times for prepayment. But if you have a prepayment option written into your mortgage contract you can make balloon payments each year, which will be taken directly off the principal.
- Make bi-weekly payments. Frequent payments also save you money on your mortgage. Bi-weekly payments mean you’ll make 26 payments in a year, the equivalent of 13 months of mortgage payments as opposed to 12 monthly payments.
- Consider a short term mortgage. If you are confident that interest rates won’t rise, it pays to get the shortest term loan you can afford. In the recent years a borrower choosing a one-year term and renewing each year would have saved more interest costs than someone who chose a five-year term. This is because mortgage rates declined over this period.
- Minimize closing/administration costs. When arranging your mortgage, your lender can charge a variety of fees including application, appraisal and legal fees. These costs can add up quickly. Some fees are negotiable so talk to your lender about waiving as many closing and administrative costs as possible.
A mortgage is a major financial commitment. You’ll be glad you took the time to understand the process. For further information, contact your realtor, mortgage broker or financial institution.