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Tips For Lowering The Total Cost Of Your Mortgage
The total cost of your mortgage includes repayment of the principal, interest, origination fees, and any points or pre-payment penalties you may be charged. A variety of factors can influence how costly these expenses are. Here are some tips on lowering your total mortgage cost, both before and after your mortgage begins...
BEFORE TAKING OUT YOUR MORTGAGE
1. If you plan to stay in the home for a long period of time (many years), consider paying one or more "points" when initiating the loan. Points are pre-paid interest in the form of an up-front payment; they increase the initial cost of a mortgage, but decrease the monthly payments and save the borrower money overall.
2. Avoid taking out a mortgage with pre-payment penalties (especially if they are high), which penalize borrowers for repaying the loan earlier than it is due. This will not only eliminate the potential cost of such penalties, but makes substantially lowering the total interest cost possible (by making extra payments when you have excess income to spend).
3. Choose a mortgage that takes less time to pay off, and avoid interest-only mortgages. A fifteen year loan will have a much smaller total cost than an equivalent loan with a thirty or forty year term, if you can afford to make the larger monthly payments.
4. Make a greater down payment when purchasing a home or other property. This is effective for lowering both the amount of interest and the principal, which has to be repaid. Making a down payment, which is just $1,500, more will save about $2,350 total in monthly payments, during a fifteen-year mortgage at 6.5 percent.
5. Compare the offerings of different banks, credit unions, and other lending institutions before applying for a mortgage, including their rates and origination fees. Some lenders offer a reduced origination fee to those who apply for a loan online.
AFTER TAKING OUT YOUR MORTGAGE
If you're already a homeowner with an existing mortgage in place, there are still some additional tips you can apply toward lowering its total cost...
6. Depending upon your mortgage's terms and current interest rate, you might be able to refinance it at a lower rate, so as to decrease the total interest cost to be paid on the remaining principal.
7. When you have sufficient extra income, make payments in addition to the regular monthly cost. This will reduce the principal owed, thus lowering the amount of interest, which has to be paid to your bank or other lending institution. Just making an extra $10/month payment and paying an additional $150 each year on a $125,000 mortgage (at 6.75% interest for thirty years) will succeed not only in lowering the total cost, but allow the loan to be paid off two years sooner.
8. Another way of lowering the total cost is to avoid late fees by making mortgage payments on time. This will also prevent your credit record from being damaged, thus lowering the cost of any mortgages you might apply for in the future. Be sure to prioritize your monthly payments appropriately. For example, paying an electric bill late instead is likely to incur a smaller fee.
Following the above-mentioned tips should help in lowering your mortgage's total cost, thus freeing up funds you can use to pay other expenses, make investments, or save for your retirement. Basically, paying more of your mortgage balance as soon as possible and finding a lender, which provides favorable repayment terms, are two of the main methods for lowering the total cost.
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