Saving will always be an important habit when mortgaging our home, in this article we share everything you need to know about this topic.
Mortgage interest rates have been near multi-year lows, but they are likely to rise in the coming years. Even if you can no longer count on historically low interest rates , there are plenty of things you can do to make sure you save money on your mortgage . Here are the top five:
1. Increase your advantage
You can get a larger down payment by saving a little more, receiving gifts from family, or selling a larger asset . If you can increase your down payment to 20% or more, you can avoid paying private mortgage insurance and save hundreds of dollars each year. Plus, a higher down payment means your loan balance will be smaller and require less interest to pay off. Interest rates are typically lower for those who can contribute 20% or more, as these loans are much less risky for the lender.
2. Payment points
By paying a few points at closing, you can lower your mortgage interest rate , reduce your monthly payment, and save money on interest over the life of the loan. This plan works best if you plan to stay indoors for a long time . One point is typically equal to 1% of the loan amount, so you need to stay in your home long enough to start saving up for that initial cash outlay.
3. Consider a supplementary loan
Although these so-called “piggy back” loans were more popular in the past, they are still possible and could save you money. Also called an “80/10/10” mortgage, this scenario involves taking out a loan from a lender for 80% of the purchase price, contributing 10% as a down payment, and taking out a second loan to cover the remaining 10%. This is another way to avoid paying PMI and can help you get a lower mortgage payment if you pay off your second mortgage as quickly as possible. A “piggy back ” loan often makes more sense if you don’t have 20% of your money to put down. Keep in mind, though, that second mortgages typically have slightly higher interest rates, and those rates are often adjustable based on market conditions.
4. Be willing to negotiate
To save some money, it’s important to talk to your lender. If you never ask for better terms, you’ll never know what you could have gotten. It won’t hurt to ask for lower rates or interest rates.
5. Improve your credit score
Finally, if you don’t meet the rates or terms you expected, take a little more time to improve your credit score. This means making all your payments on time for several months and maintaining a low total debt-to-available credit ratio.
Don’t open new credit accounts while you’re working on getting a mortgage. Get a copy of your credit report to look for inaccuracies. Removing them will improve your score almost instantly. While a score of 760 or higher is ideal, the closer the score, the better terms and rates you’ll get. Don’t be afraid to ask your lender about other ways to save money on your mortgage. They may offer special programs or give you other tips on how to lower the cost of your home loan.
Finally, I offer you my key tips:
Here are some strategies to save money on your mortgage, even when interest rates start to rise:
- Improve your credit score: A good credit score can help you qualify for lower interest rates on your mortgage. Work on improving your credit history by paying your bills on time, keeping your credit card balances low, and correcting any errors on your credit report.
- Make early payments: Making extra payments toward the principal of your mortgage can help you save interest in the long run and reduce the time it will take to pay off your loan. Even modest extra payments each month can make a big difference .
- Compare offers from different lenders: Don’t settle for the first offer you receive. Compare interest rates and terms from multiple lenders to ensure you get the best deal possible. Even a small difference in interest rate can result in big savings over time.
