October 27th, 2019 9:30 AM by Jackie A. Graves, President
Are you a homeowner with a mortgage or thinking about buying a
home soon? At least one or two of these top 10 mortgage hacks will help you to
save thousands of dollars. They all work but it just comes down to some
planning and discipline.
1. Prepare For Your
The most important mortgage hack to save money
long term is to prepare far in advance. Many future home buyers make the mistake of waiting until
they are ready to shop for a home or after they have already
found one before speaking to a mortgage professional. Why is this important?
Starting early will leave enough time to clean up your credit to increase your
scores and also to determine what down payment is needed to qualify for the
best mortgage program. Your credit and your down payment are two of the most
important factors in determining your interest rate. Therefore, you want to do
everything you can to qualify for the best rate possible. Over the length of
your loan even on eighth of a percentage point will result in thousands of
dollars in interest saved. Consider contacting us in advance to discuss your
scenario and finances well before searching for your dream home.
2. Improve Your Credit
As mentioned above, your credit score is
important. Now is the time to do what is needed to repair your credit. Most
people do not even know what is on their credit report. The first thing you
should do is get a copy of your report from any of the credit agencies. You can
just search for free credit report services online. Once you can see the
report, then start on making improvements. To help, we put this article
together on how
to improve your credit score. Follow these easy steps and it could
save you thousands when you get a lower interest rate.
3. Buy Down Your Interest
Rate Up Front
Ask your lender about buying down your rate.
This simply means you would pay an upfront fee in exchange for a lower rate.
For example, if you paid the lender $2,000 to buy the rate down by .5% (half
percent) on a $250,000 loan, you would break even after 26 months. Your total
interest savings over the life of the loan would be $26,343. This is a great
way to save money if you plan to stay in the home for at least 5 years.
4. Gift of Equity
Prior to Closing
If you do not have at least 20% to put down, you
may find yourself in a situation where you have PMI (Private Mortgage
Insurance) included in your monthly payment. This can be hundreds of dollars
each month and may take years before you can get it removed from your monthly
payment. If you were somehow able to get a larger down payment, it would
eliminate the PMI requirement. Most loan programs allow for a “gift of equity”.
This is when a relative gives you some or all of your down payment money as a
gift. They sign a letter indicating that it is a gift and not a loan. Even if
you end up paying your relative back one day, this is a much cheaper option
than paying PMI. Plus, your interest rate will be better if you are able to put
at least 20% down. This is where the real savings come from.
5. Refinance to a
This seems like the obvious thing to do but the
real key to saving money is if you keep sending your current payment amount
even after you refinance to a lower rate and payment. Let’s use the $250,000
loan amount example again. Suppose you have a current interest rate of 6% and
you are able to refinance down to 5%. That will save you $156 per month.
However, if you send that additional $156 to the lender every month even after
you refinance, you will save about $55,000 in interest and will have paid off
your mortgage in just over 23 years. Sending the monthly savings to pay down
your loan faster is the key to this mortgage hack.
6. Ask Your Lender for
a Rate Adjustment
This is rarely advertised and not offered by
every lender. However, it is worth checking into. There are times when interest
rates decline and then the refinance wave starts to happen. People realize they
can get a lower rate and start shopping around for lenders. Rather than do a
full refinance, you can ask your lender to do a simple rate adjustment for a
modest fee. In my example, I had a 15 yr fixed loan and the rates dropped. I
called my lender and pointed out that they are offering lower rates for new
loans vs what I currently have. I also said that I did not want to go through a
full refinance. So, for a fee of just $250, they did a rate modification. Why
is this better? The rate changed for the remainder of the loan and I did not
have to get into a new loan with another 15 years of payments. This was a great
option to take advantage of and I fully recommend asking your lender about it.
7. Make Bi-Weekly
Most mortgages payments are made once per month.
Rather than send your entire payment on the payment due date, arrange for bi
weekly payments of half of the monthly payment. As an example, if your monthly
mortgage payment is $2000 per month, you would instead send $1000 every two
weeks. The result is that you will end up making an extra full mortgage payment
every year. The good thing about this method is that you are kept on a schedule.
8. Pay Down Your Mortgage With Your Tax Refund
What do you do with your tax refund? Do you go
on vacation or spend it all on something that will not yield a return? Consider
using it all every year to pay down your mortgage. If you like this idea, then
consider this…. Adjust your dependent withholdings so that more taxes are taken
out of each pay check. The change in dependents will essentially be like a
forced savings. Setting that money aside rather than letting you have it in
each pay check with the potential to spend it. Then, when you get that fat
refund check you can apply it against your mortgage.
9. Renegotiate Your Other Monthly Expenses
is one of my favorite mortgage hacks. We all have lots of monthly or quarterly
expenses that can be renegotiated. Most people just keep paying and never
question what they are being charged or whether the rates can be reduced. Using
myself as an example, I successfully renegotiated the following within the past
12 months (Auto insurance, homeowners insurance, cable TV, security monitoring,
cell phone, and internet access). This saved my hundreds per month. Those
savings should be added to your monthly mortgage payment. So, rather than send
the same money to these companies, you are paying yourself.
10. Consolidate With a
Home Equity Line of Credit
This is a great strategy if you have some equity
in your home. Do you also have high interest credit card balances, auto loans,
student loans and more? These are just some examples of things that I would see
on a credit report. Add up all of this debt and then take out a home equity
line of credit on your home for the total of your debt owed. Then, pay off all
of these debts and send the payments you were making on these debts to your
home equity lender instead. Since the interest rate on your home equity line of
credit is guaranteed to be less than the interest you are paying for these
other items, you will be able to pay it all off much sooner. The key here is to
stop creating more debt for yourself. You need to start paying cash for things.
If you do not have the cash, then don’t buy it.
You just learned my top 10 mortgage hacks that will save you
money. Try to implement as many as these as you can. If you have not purchased
your home yet then you are in better shape than those who already have. I was
able to pay off my mortgage 3 years ago using some of these tricks and it took
me a total of 13 years. It is an amazing feeling to be mortgage free. You don’t
have to make more money to do it either. Just be smarter with your money. I am
looking forward to your comments or questions below.
To view the original article click here