Photo by Karolina Grabowska: https://www.pexels.com/photo/woman-counting-money-with-calculator-5900160/
Are you planning on getting a mortgage but want to know how you can reduce the financial burden it can give you? This article can help you with ten different approaches you can take to reduce the money you spend on your mortgage as much as possible. Let’s begin.
1. Put down a larger deposit.
Once you’re ready to commit to a home loan, you must put down a deposit. If you want to reduce the cost of your mortgage, a great way to do that is by increasing how much you deposit into your mortgage.
How much you give as a deposit will reduce the money you need to pay off overall from the lender. Just make sure that it’s still financially viable for you to do and that you’re not digging into your emergency funds just to be able to say you put down a large deposit.
In many cases, if you pay at least 20% of the home’s value as your deposit, you can skip some unwanted fees like the mortgage insurance. Going over 25% of the home’s value is considered significant if you want to put down a larger deposit.
2. Get a lower interest rate
When you get a mortgage, part of your costs would be the interest rate attached to the mortgage. If you want to reduce the price of the interest rate, there are a few things that you can do.
First, maintaining a good record and improving your credit score will do wonders for lowering your interest rate. If you want lenders to give you their lowest interest rates, you must have the best credit score. Pay off any debts wherever possible and avoid incurring new ones, like a car loan.
Another way to lower the interest rate is by locking in your interest rate if you feel like it’s favorable right now. If you don’t lock it in, it could be more expensive, depending on the timing of the market.
You can also buy mortgage points or discount points, a one-off payment at closing that will reduce the buyer’s interest rate.
3. Make extra monthly payments to the principal.
Another way to save money on your mortgage is by paying an extra amount when it comes time to pay your monthly payments. When you add additional payments to your monthly expenses regularly, you can reduce how long it will take you to make monthly mortgage payments.
It doesn’t even have to be a lot to add. Even just a $50 addition to your payments can help reduce years of how long you have to pay your mortgage. Just make sure that you check whether your lender has some form of prepayment penalty so that you avoid having to do that as well.
But, if things go well, you should get a better debt-to-income ratio and be a complete homeowner sooner.
4. Make extra mortgage payments annually.
If you don’t want to make an extra monthly payment, you can add a mortgage payment every year as a bundle. Adding a 13th-month amount for your mortgage every year can reduce the years of your mortgage payment.
You can look for finance services that offer debt consultation so they can help you figure out the logistics of making this step. Just ensure you read through reviews when you find one you want to work with. For example, look at Money Max Account reviews to see whether their services can help you with your finances and aid your mortgage situation.
You can also better understand how much you will pay for that 13th-month payment, but usually, it would be the same amount as your monthly payment.
5. Select a shorter mortgage term.
Although longer mortgage terms offer cheaper monthly payments for you, the shorter mortgage terms provide an overall lower price in the long run. There’s no shame in doing longer mortgage terms if you can’t financially take on the load of the monthly payments required of shorter mortgage terms, but if you can, opt for shorter ones.
With a shorter mortgage term, you not only get fewer years of having to pay off your mortgage, but it will also lower your mortgage insurance rates.
The issue here is that it’s pretty challenging to find lenders that even offer short-term mortgage terms in the first place. Plus, it’s hard to get approved for it. However, if you see someone willing and reputable, it’s a better choice.
6. Refinancing your mortgage.
Refinancing your mortgage is an excellent choice if a lender offers better interest rates than your current mortgage, significantly after you’ve improved your credit score.
Refinancing works because your new lender will pay off your initial mortgage as you take on their own newer terms. You can do this even after you’ve already closed things and paid for some of the costs of your new loan.
You shouldn’t consider refinancing your mortgage if you plan to sell your house anyway, but if you plan to stay in that house for a long time, then refinancing is worth considering.
7. Extend your amortization.
If your issue is that your mortgage takes a huge chunk of your monthly budget, and it’s becoming unsustainable for you to maintain, then consider extending your amortization.
By extending your amortization period, you spread your mortgage payments over a more extended time. This extension means that each amount becomes smaller, resulting in immediate monthly savings. This approach can be especially beneficial if facing financial constraints or looking to free up extra cash flow.
Additionally, extending your amortization allows for greater flexibility in managing your finances. Lower monthly payments will enable you to allocate funds toward other financial goals or obligations.
Whether saving for retirement, investing in education, or paying off higher-interest debts, an extended amortization can give you the breathing room needed to pursue these objectives.
Extending your amortization may result in short-term savings and increased financial flexibility, but your total payment is higher.
8. Eliminate mortgage insurance.
Mortgage insurance is an additional cost to your mortgage payment as it’s a fee that will serve as protection to the lender in case you cannot complete your payments on the loan. You can usually get rid of mortgage insurance by going above a certain amount for your downpayment.
Sometimes, you can request to remove mortgage insurance once you hit around 80% of your mortgage balance. It’s best to consult a professional who can advise you if you don’t know how to eliminate mortgage insurance based on your circumstances.
9. Familiarize yourself with float-down policies.
Before you commit to engaging with a particular lender, you should ask them about their float-down policies if they have any in the first place.
These policies indicate that you can get lower insurance rates over time from your lender if the market trends are favorable. Again, not all lenders have these, so it’s worth asking a lender first if they do that as a way for you to weigh your options one way or the other when shopping around for a lender.
10. Make bi-weekly mortgage payments.
We mentioned earlier that you can make one additional lump sum for a 13th-month payment annually to pay off your mortgage and reduce the term length of your mortgage. One way to do that differently with the same result is by making biweekly mortgage payments instead.
These add up to the same result, so you will build equity in your house and reduce your interest faster.
Conclusion
These smart financial strategies should make it easier for you to find ways to reduce the burden of your mortgage on your finances. Therefore, whether you’ve been paying your mortgage for a few months or years already or are planning to start taking on one, make sure that you root through these strategies to save some money.
Author bio:
Kate Manning is passionate about home improvement and interior decoration. When not at
work, you’ll see her running around the neighborhood to prepare for any upcoming local
marathon.
