Your Mortgage And You: Reducing Your Payments The Smart Way

Mortgage payments can be a heavy expense; especially since house prices are pretty high and the mortgage could also be at a higher rate. The problem is that the payments can be a burden for years to come; and these days, uncertainty is a looming fear. If you want to avoid that problem, here are some smart tips on how to reduce your mortgage expenses.

Use A Broker

The savings can start from the moment that you start looking for a mortgage. Instead of hunting on your own, it is a good idea to ask a mortgage broker on what you need to do. You might think that this is an unnecessary expense, but you won’t spend any money. Mortgage brokers get a commission from the lender, usually one to two percent of the loan. For something that you don’t pay for, you get a lot of value. Mortgage brokers don’t have any distractions when it comes to getting a good mortgage deal. All you have to do is to give your parameters to them. They will then give you a listing of possible lenders and their rates. Besides that, they will do all of the paperwork and heavy lifting involved. You save money by getting the best deal and not wasting time on doing everything else.

Improve Your Credit Score

A major factor that can affect your mortgage is your credit score. Lenders like to know whether you would be able to pay off your debts. Those with a good credit score experience lower interest rates since lenders don’t have to worry about you being able to pay. But those with low credit scores end up with higher rates and some very strict restrictions on the payments. To avoid the high-interest rates, you should prepare for the mortgage by maintaining a good credit score. This can take years, so if you plan to buy a house, you should start paying off your debts early and regularly.

Avoid Unnecessary Fees

When you receive your mortgage document, you should look closely at the breakdown of expenses. There might be fees that you can easily avoid. For example, there is private mortgage insurance. People have to pay this if their down payment is lower than 20 percent of the total mortgage. This adds up depending on how large your mortgage is. Avoid this expense by paying as much of the down payment as possible. There are other fees that you don’t need to pay as long as you meet the requirements.

Choose Shorter Payment Terms

Many people automatically get 30-year mortgage terms. However, you shouldn’t always go that route. It may allow you to pay your mortgage at a comfortable pace, but it also means a longer time to pay. This means that you pay more interest. When it comes to loans, the best way to save money is to pay them off as quickly as possible. 15-year mortgages are the best because they usually have lower interest rates. This means that you pay them off as quickly as possible.

Ask For Pre-payment Privileges

Lenders like it when you pay them promptly, but they can be happier when you pay early. While looking for a mortgage, you should look for ones that offer pre-payment privileges. These privileges allow you to make an advance payment of the principal of your mortgage without experiencing any penalties. You might suddenly experience a financial windfall or something similar. You’d want that money to go into your mortgage. This can cut down on the time that you have to pay since with a lower principal the interest you have to pay is much lower. If you regularly pay extra, then you can expect to pay off your mortgage years earlier. This helps save on interest payments in the long run.

Start A Bi-Weekly Payment Plan

Mortgage loan agreement application with house shaped keyring

This is not an official payment plan but something that you do, combined with your pre-payment privileges. Every two weeks, you should pay half of your monthly mortgage payment. For example, if you pay $3,000 a month, then save and pay $1,500 every two weeks. This sounds like a normal payment schedule, but the math is much different. With a payment every two weeks, you will make 26 half-payments a year. This is 13 full payments, with an extra month of payment which goes to your principal. It will add up over the years, and you can expect to cut several years from your mortgage interest payments.

Owning a home is a dream for many people. With the right approach to your mortgage, you won’t end up paying too much for it.

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