May 1st, 2017 4:36 AM by Jackie Graves, President
Whether you're new to homeownership or have
been making mortgage payments for years, it never hurts to find ways to slash
your costs. Here are three tips that can help you save thousands.
One major advantage to getting
a 15-year mortgage, as opposed to a 30-year loan, is that you'll generally be
eligible for a much lower interest rate Opens a New Window..
For example, last week, 30-year fixed mortgage rates averaged 3.97%, while
15-year fixed rates averaged 3.23%.The downside, however, is that because
you'll be paying off your loan in half the time, despite the lower interest
rate, your individual monthly payments will be considerably higher.
If you're looking to benefit from some of the interest savings
of a 15-year loan but are afraid to commit to a more sizable monthly payment, a
good solution is to get a 30-year loan and simply pay it off faster. You can
accomplish this by doubling your monthly mortgage payment when you have extra
cash available or by making extra lump-sum payments toward your mortgage as
Say you have a 30-year, $200,000 fixed mortgage at 4% interest,
and you use a performance bonus you receive at work to make a $5,000 payment
toward your mortgage during the second year of your loan. That move alone will
save you close to $10,000 in interest and shave more than a year off the life
of your loan.
If you want to attempt to pay off your mortgage early, just make
sure your loan doesn't come with prepayment penalties. Otherwise, you'll be
charged a fee for the privilege of wiping out your mortgage debt sooner.
2. Pay your mortgage every two weeks instead
of once a month
The typical 30-year loan comes with 360 payments, or 12 payments
per year. But if you take your monthly payment, divide it in two, and pay that
amount every two weeks, you'll wind up making the equivalent of one extra
monthly payment each year while saving yourself a huge chunk of interest in the
process. And that single extra payment won't hurt much, unlike a big lump-sum
payment, especially if you work your new payment schedule into your monthly
Say you're looking at a 30-year, $200,000 mortgage at 4%, which
would normally translate into 360 monthly payments of about $955 each, or
roughly $11,460 a year. If you were to switch to a biweekly payment schedule,
you'd pay $477 every other week, or roughly $12,400 a year. But in doing so,
you'd actually save yourself over $23,000 in interest over the life of your
3. Refinance to a shorter term
One drawback of refinancing a mortgage is that it often resets
the clock on your repayment schedule, which can not only cost you more money
than necessary in interest, but drag out the repayment process so that you're
less likely to have shaken your housing debt by the time you retire. For
example, say you've been making payments on a 30-year loan for five years, and
then you refinance to another 30-year loan at a more favorable rate. While
you'll lower your monthly payments, you'll also be five years older when you
finally get that mortgage paid off.
On the other hand, if you refinance to a shorter term (say, from
a 30-year loan to a 15-year loan) to take advantage of a more favorable rate,
you'll save money on interest and avoid extending the amount of time you're
saddled with mortgage debt. Of course, this strategy only works if you can
actually afford a larger monthly payment. (Remember, while you'll benefit from
a lower interest rate, your actual payment will still be higher if you switch
from a 30-year loan to a 15-year mortgage.) But if your earnings have increased
substantially since you first signed your loan, and you have room in your
budget for higher monthly payments, you'll come out ahead in the long run.
Homeownership is an expensive prospect, so it pays to take steps
to lower your costs. These tricks will help you spend less on your mortgage and
keep more of your money where it belongs -- in your pocket.
Maurie Backman - To view the original article click here