There are two basic ways that you can save money on your mortgage. Money can be saved in the long term, usually by paying the mortgage off faster than the terms of the loan require. You can also save money in the short term by refinancing to a lower rate. This option is especially important if you took out your mortgage sometime before 2010 when rates varied from 6 to 9%. Interest rates on a 30-year fixed home loan are currently around 4.25%.
Refinance Your Home Loan
Refinancing your home loan through the Home Affordable Refinancing Program (HARP) or through an FHA streamline loan can help save you thousands of dollars over the course of your mortgage. Basically, refinancing allows you to lower the interest rate on your loan and can thus reduce your monthly mortgage payments. A lower interest rate means that more of the money that you pay each month will actually apply towards the principal instead of the interest. There are fees associated with refinancing, but many mortgage banks are willing to waive some of them to make the whole process more affordable.
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Pay Off Your Mortgage Loan Early
Paying off your home loan early is a great way to save money provided that you have the means to do so. For every loan that you take out, you have to pay back a certain percentage of the loan in interest. The longer the duration of the loan, the more interest you’re going to have to pay back on top of the principal. Setting aside more money each month for your mortgage can help save thousands of dollars in interest payments.
You might be surprised how much money you can actually save just by paying a little bit more each month towards your mortgage. Suppose you were to take out a 30-year fixed home loan for a house that costs $100,000 with an interest rate of 4.5%. Your monthly payments will add up to $506.69. By paying just an extra 100 dollars more every month you’ll end up saving $26,378 in interest over the life of the loan.
Get Rid of Private Mortgage Insurance (PMI)
Eliminating private mortgage insurance is an effective way to save money over the duration of a home loan. If you’ve taken out a conventional loan, you will be forced to pay for (PMI) until you’ve paid 20% of the loan. So reaching that mark as quickly as possible is important. If you want to skip paying for any PMI all together than simply pay down 20% of your loan up front. For a $200,000 mortgage with a 30-year fixed interest rate of 6%, you could save as much as $130 every month if you’re not paying PMI.
Saving money on your mortgage is a smart financial choice. It frees your money up later on so that you can use it for a variety of purposes, like your retirement. Ideally the best way to save money on your mortgage is to pay it off as quickly as possible with the lowest interest rate that you can acquire. But even if you can’t afford to pay more for your mortgage each month, then you can always look into the possibility of refinancing. With rates expected to keep climbing throughout 2013, it’s wise to start looking at some of the options that you have sooner rather than later.
