It is estimated that mortgage payments account for up to 35% of the average homeowners' income. In a struggling economy people are pinching pennies, but most are unaware of the simple ways to save money on their largest monthly expense: their mortgage. There are many ways in which homeowners can save both monthly and over the life of their mortgages. With just a little effort and research, you might be able to lower your housing expense and save.
Make One Extra Mortgage Payment Annually
If you have the means to do so, making extra payments on your mortgage is the quickest way to reduce the remaining balance. The more you pay, the less you owe (it’s as simple as that!). These payments are applied to your principal (not interest) so you will not be required to pay monthly interest on that principal for the remainder of the term.
Making one extra mortgage payment a year on a 30-year term can potentially cut up to 7 years off the life of the loan. This essentially does the same thing as a bi-weekly payment plan but allows you the flexibility of choosing when to make the extra payment.
Set up Bi-weekly Mortgage Payments
Consider setting up a budget where you put half of your monthly mortgage in a savings account or separate checking account every 2 weeks. When your monthly mortgage is due, use this money to make the payment. At the end of 12 months you will have made 26 half mortgage payments, which equals 13 full mortgage payments. This means you’ve made an extra payment to be applied to your principal. This option is especially convenient for those who get paid bi-weekly. Most mortgage servicers offer bi-weekly payment plans for your convenience. This option can be a bit pricier since you will be paying for the service. Be sure to ask about “set-up” fees and monthly fees before deciding whether to join your lender’s plan or go it alone.
Eliminate Private Mortgage Insurance
Private mortgage insurance is required for homeowners who obtain conventional home loans worth more than 80% of their home’s value. You can avoid having to pay PMI right off the bat if you make a down payment of at least 20%. Or once you’ve paid the loan balance down to 80% of the property value (LTV), the PMI should automatically terminate. You may be required to have a new appraisal to prove the appreciation of your home, but eliminating PMI will reduce your monthly expenses right away and save thousands in the long run.
Also, those homeowners who currently have FHA loans can eliminate their monthly mortgage insurance. They must carry the insurance for a minimum of five years. At that point, they must be under 78% of the home’s value before requesting the removal.
If you believe your home’s value has decreased within the past year and was improperly accounted for in your property tax assessment, you can challenge the assessed value. Contact your town’s department of assessment and taxations for any concerns and you may be issued a refund.
Refinance or Buy New Home with a Lower Mortgage Rate
You may want to take advantage of historically low mortgage rates by considering a mortgage refinance or buying a new home that might better suit your current needs and wants, while the time is right. Refinancin or obtaining a new home loan with a lower mortgage rate will reduce your monthly mortgage payments and save you hundreds or thousands of dollars a year on interest payments.
Homeowners looking to lower their payments many viable options available to them. A few of these options don’t involve refinancing at all. It is important to understand your options so that can maximize your savings.