It is understandable that the top priority of most home buyers who are looking for mortgage is to get the lowest monthly payment. But an even better idea is to look at how much it's going to cost you over the long term, in both interest payments and fees. You can save a significant amount over the years by looking at these costs.
You may already have a mortgage, but even so there are still a number of strategies you can use to reduce the total amount of interest you'll pay. What most of these do is accelerate the speed with which you repay the loan and so your long-term interest costs will be reduced.
If you want to reduce the long-term cost of your mortgage, then here are several ways you can do so.
Try to compare offers It always pays to get offers from several lenders when you're shopping for a mortgage. Did you know that offers can vary substantially? Especially if your credit is considered sub-prime, you shouldn't accept a high-interest rate mortgage without looking for a better offer.
Don't forget the fees The fees or points lenders add onto the deal is one factor that increases the cost of your mortgage. Look at these carefully, and don't be reluctant to challenge fees that seem too high. To compare offers, you can use the annual percentage rate (APR), which includes both the interest rate and the fees.
Shorten the term If being in the house for some time is what you intend to do, then your interest costs can be lowered substantially by choosing a shorter mortgage term. Not only will this enable you to save significantly over the life of the loan, but you will also increase your monthly payment. Aside from that, it may also enable you to get a reduced rate on the mortgage. For instance, if you choose a 15-year term at 5.75 percent versus a 30-year term at 6 percent, then you can save $66,364 over the life of a $100,000 mortgage.
Pay bi-weekly Instead of paying your mortgage every month, you should consider paying every two weeks. The difference is hardly noticeable, but this can cut the amount of interest you pay since your principal decreases more steadily. And, since there are 26 two-week periods in the year, you actually make an extra monthly payment each year, further shrinking the principal.
Cutting the PMI Having a down payment that is less than 20 percent of the house price would mean that you may be required to take out PMI or private mortgage insurance. However, once your mortgage principal decreases to 80 percent of the home's value, you can petition your lender to cancel the insurance. This may happen after you've repaid some of the principal, or if the home's value rises quickly. While savings should make the expense worthwhile, you may have to have the house reappraised.
You may already have a mortgage, but even so there are still a number of strategies you can use to reduce the total amount of interest you'll pay. What most of these do is accelerate the speed with which you repay the loan and so your long-term interest costs will be reduced.
If you want to reduce the long-term cost of your mortgage, then here are several ways you can do so.
Try to compare offers It always pays to get offers from several lenders when you're shopping for a mortgage. Did you know that offers can vary substantially? Especially if your credit is considered sub-prime, you shouldn't accept a high-interest rate mortgage without looking for a better offer.
Don't forget the fees The fees or points lenders add onto the deal is one factor that increases the cost of your mortgage. Look at these carefully, and don't be reluctant to challenge fees that seem too high. To compare offers, you can use the annual percentage rate (APR), which includes both the interest rate and the fees.
Shorten the term If being in the house for some time is what you intend to do, then your interest costs can be lowered substantially by choosing a shorter mortgage term. Not only will this enable you to save significantly over the life of the loan, but you will also increase your monthly payment. Aside from that, it may also enable you to get a reduced rate on the mortgage. For instance, if you choose a 15-year term at 5.75 percent versus a 30-year term at 6 percent, then you can save $66,364 over the life of a $100,000 mortgage.
Pay bi-weekly Instead of paying your mortgage every month, you should consider paying every two weeks. The difference is hardly noticeable, but this can cut the amount of interest you pay since your principal decreases more steadily. And, since there are 26 two-week periods in the year, you actually make an extra monthly payment each year, further shrinking the principal.
Cutting the PMI Having a down payment that is less than 20 percent of the house price would mean that you may be required to take out PMI or private mortgage insurance. However, once your mortgage principal decreases to 80 percent of the home's value, you can petition your lender to cancel the insurance. This may happen after you've repaid some of the principal, or if the home's value rises quickly. While savings should make the expense worthwhile, you may have to have the house reappraised.
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