Often, a person who purchases a home for the first time and with little investment experience, will find himself caught in the whirlwind of mortgage promotions, never realizing the real amount he is paying until he finds himself 10 years deep into the mortgage. Here are 10 useful tips to help you save on mortgage:
1. Pick a bank with the lowest interest rates – This is one of the most obvious things you can do to save on mortgage. It’s best to be aware that a difference of .1% could already mean a couple of thousand dollars in the long run. Don’t be caught by the bank with excellent customer service and a crisp smelling office. If it has high mortgage rates, go and look for another lender.
2. Choose a fixed rate mortgage over an adjustable rate mortgage – Adjustable rate mortgages may sound appealing due to the low interest rates you could be faced at the start. However, ARM’s are volatile and the interest rates could definitely go up depending on the index. This will put you at risk on having a monthly obligation which is bigger than what you normally have planned on.
3. Increase your equity – The bigger down payment you can afford, the better. Having a bigger equity will mean having to take on a lower loan. If you can afford to wait until you have more money to pay for a bigger downpayment, this could be ultimately better for you in the long run.
4. Shorten the loan term – Although 30 year loans and the small amount of monthly payment you have to dish out may make your eyes dance, what you don’t know is the amount of interest this long loan term piles up on you. The best way to distinguish just how much you’re paying is by using a mortgage calculator. You will then see the advantage of shortening the loan term.
5. Refinance – There will come a time when refinancing becomes a sensible thing for you to do. You could exchange your higher interest rates for lower ones, decreasing your monthly dues.
6. Waive some settlement fees – Ask your bank if you can have some settlement fees waived. There’s no harm in asking.
7. Be aware of bank promotions – Ask your customer representative to inform you of any bank promotions. Some banks might just have promos about cutting closing fees. Right now, Ever Bank in Florida can give as much as $500 off on closing costs.
8. Pay a little extra every month – This is one golden tip that could potentially save you thousands of dollars. For every month that you pay off your mortgage, add a little bit to pay for the principal. You could put in an extra $50 or $100. In a $100,000 mortgage at 6% and in 30 years, chipping in an extra $50 on the principal per month could mean a savings of $25,000. That’s a lot!
9. Beware of the interest only mortgage – An interest only mortgage may sound juicy, but the after effects once the interest only term expires could be devastating to your bank account.
10. Build rapport with your bank – If you have other transactions with your bank, discuss these with them and try to see if you can haggle for a lower interest rate.
Whatever your financial status is, it’s always best to save on mortgage as this could be a loan that stays with you for a relatively long time.