For most people, the mortgage payments account for the highest expense in their monthly payments. Homeowners pay mortgages for many years and this drains their income. No wonder that most people are looking for ways they can save money on mortgage and release it to pay bills or save for their children’s education and retirement or to pay debt. You can save money on mortgages by following the following guidelines.
Good credit history lowers interest rate
Credit rating is important when you are applying for a mortgage. The higher the credit score the more favorable will be the terms of the mortgage. People who have a good credit history are offered mortgages at lower interest rates and a longer repayment period. Your bank will ask for your credit score from the credit bureaus. To save money on mortgage you need to strengthen your credit score. Go through the credit report and check any misrepresentations, omissions and mistakes. Write to the credit bureau and point out what you believe needs to be changed. Once you negotiate the credit report and it is corrected this will strengthen your credit score. You can then apply for a lower interest rate on your mortgage.
Pay a down-payment to reduce interest rate
When you pay a high down-payment on your mortgage i.e. 20%, your bank will offer you a lower APR than when you do not pay a down-payment. The higher the down-payment the lower will be the APR. The down-payment is a part payment of the mortgage on your part and it shows your willingness and ability to pay the mortgage. This reduces the risk in case of default because the lender will recover part of the mortgage from the down-payment.
Pay your mortgage faster
A mortgage taken for a shorter repayment period will be cheaper in the long-term than a mortgage taken over a longer repayment period. In the end you will have paid a lower amount when the repayment period is 15 years than when you pay the mortgage over 30 years. Although the repayment amount is higher per month if you can afford to pay the amount you will have saved huge amounts of money on the mortgage.
You can ask your lender to refinance your mortgage and replace it with a lower interest rate mortgage especially if you have a good credit history. You can also negotiate to pay higher amounts and save money in the end. Save interest and repay the mortgage faster by increasing the mortgage payments.
Increase payments with extra money
If you can afford to pay extra money over and above the mortgage repayments you will be able to save a lot on interest which is higher at the beginning. The extra amount you pay will reduce the principal outstanding which will earn a lower interest and this is good for you in the long-run. Make additional payments and save the amount charged as interest.
The mortgage home will be used as collateral or a security for the loan. When the homeowner has a strong asset-to-debt ratio the bank will be able to negotiate lower APRs. Employees who earn a monthly pay qualify for lower interest rates because they are considered low-risk especially if the mortgage repayments will be deducted directly from their pay.
Increase repayment frequency
You can save money on mortgage when you increase the frequency of your payments to Bi-weekly because the interest charged will be less than what is charged for a whole month. When you pay more frequently the amount apportioned to pay the principal increases and since interest is calculated based on the mortgage principal balance, the interest will be less and you will save substantially.
Consolidate your mortgage
Many consolidation companies are making arrangements to consolidate the mortgages into one debt and offering lower interest loans than when the loans were paid separately. You should take advantage of the lower interest rates and pay less. The amount saved can pay bills or go into savings.
Assume an existing mortgage: When you buy an old house you can take over the existing loan (if it is transferable) from the seller if the interest rate is lower than what you would be charged if you took a new mortgage. You can pay the difference between the purchase price and the mortgage or you can take a second loan to pay the difference. You should calculate and see if this fits your financial plan. You will save money on expenses which you would have incurred when taking a new mortgage.
Look for the lender that offers you the best terms. Negotiate and ask for reductions. Business is competitive and you may end up saving if you have a good credit history.