Buying a house is likely to be your single greatest purchase in your lifetime. Because you will pay a substantial portion of your monthly income on your home loan payment, finding ways to save money on your mortgage is essential. Consider these ways to save:
Know how much the mortgage total will be. Instead of just considering the monthly payments, take the time to figure out how much the house will cost after you have paid the mortgage for 30 years. A $250,000 home in which you pay a $50,000 deposit and take out a $200,000 mortgage won’t cost just $200,000, as many people like to believe. In the end, at a 5% interest rate, it will cost you $386,511.57.
Use a mortgage broker. A mortgage broker is free for the future home owner to use, and a broker can usually find the best rates for you. A broker can show you a home loan comparison, so you will be able to pick the best mortgage rate and terms for your situation. There is no need for you to take the time to shop around; the broker does it all.
Don’t spend as much as you are qualified for. Many people buy a house for exactly (or even a little over) the amount the bank qualifies them for. This can be a mistake. A more prudent decision is to buy a house well under your approved amount. The smaller loan you take out now, the less you have to pay in interest over the life of the loan.
Make larger than required payments. There are many tricks to pay off your mortgage faster. You could round your payment up to the nearest hundred every month. You could pay every two weeks so that you end up making an extra payment every year. You could throw any bonus money or unexpected money on the mortgage. While it doesn’t seem like these little actions will help, taking these steps will help you save thousands in interest and shave years off your mortgage.
Refinance to cut your interest rate. If you already own a home, you could refinance at a lower interest rate, if the market is favorable, as it is now. However, keep in mind that refinancing comes with fees; make sure you will be staying in the house long enough to recoup the fees and save money. Also, don’t extend your loan out to 30 years again. Refinance for the same payoff time or less.
Your mortgage payment is probably your single largest expense. Don’t just dutifully pay the minimum each month for 30 years. Take steps before you own the home and after you purchase it to save money on your mortgage every step of the way.
[Photo credit: Flickr user 401(K) 2012]