Gaining a mortgage is considered as essentially the Mount Everest of our generation. It’ll be a challenge, but possible. And we give so much time and energy to gaining the mortgage, we don’t even really think about the monthly repayments. The train of thought is to save for a down payment and think about if you can afford the mortgage repayments down the line.
Lucky for you then, that there are ways you can save on your mortgage repayments. If you’re looking for ways to save on your mortgage repayments, take a look at our guide below.
Contrary to popular belief, there is an opportunity to negotiate when it comes to your mortgage. The best way to do this is to shop around. Present your finances to various lenders and see what offers they put on the table.
Remember to put forward the best case possible. Offer every source of income you have, including alimony, child support, social security payments, returns from investments, side businesses and part time jobs. Wipe away any debt as best as possible. You can do this over time by paying more than the minimum amount or make things easier with a balance transfer card or an auto refinance. The first thing any lender will look at is your income, and then your debt-to-income ratio to determine if you are a good choice to lend to. Most banks prefer less than 36% on a debt-to-income ratio to be secure in lending.
You can take all the heavy lifting out of this process and gain an expert’s insight by hiring a mortgage broker. They can sift through potential mortgages, comparing interest rates and looking for areas where you can save money. If you’re looking to deal with a mortgage broker, take a look at this guide.
Once you have your offers, you can present them to your initial lender to see if they will match them. They might see that you have potential, or they might stick to their guns, either way, you now have a better offer on the table that you can pursue.
Offer a bigger down payment
When you are shopping around for a new home, you will have to think about how much you have saved up for a down payment.
This is a big part of how you can save interest on your mortgage. If you have a down payment of more than 20% of the value of your home, you can forgo the private mortgage insurance or PMI, that will be added to your regular repayments. Lender’s insurance is designed to protect the lender, should you stop paying your mortgage.
With the extra funds that 20% of your potential home’s value will bring in, your lender will feel more secure in offering you a mortgage and therefore will drop the insurance fee.
Switch to bi-weekly
The main principle of saving money on your mortgage interest is to pay off your mortgage faster to avoid more interest. That’s why it’s useful to switch to bi-weekly payments instead of monthly payments. Switching your payments to every two weeks rather than once a month adds a payment every year, so you are making 13 payments a year rather than 12.
Plus, the total payments made every year counts towards your principal, and every reduction in your principal will bring your interest down. Throughout a 15 or 30 year mortgage this can equal taking years off your loan.
Even if you don’t switch to bi-weekly payments, perhaps due to the fact that your policy doesn’t allow for it, you can have the same effect by making an extra payment every year of your own accord. In fact, if you find you have the money, say from a tax return or a bonus at work, you can add as many extra payments as you want to and keep bringing your principal down and your interest with it.
Recast your mortgage
Recasting, or re-amortization, is the concept of you paying a significant chunk of your loan and then “recasting” your existing loan, meaning you are taking out a new loan without the need for existing qualifying factors.
From the point that you take out this new loan, your principles and interest month-to-month will be recalculated and with the extra chunk of loan paid off, your monthly repayments will lower.
Streamline refinance is available to people who have a government-backed loan and allows them to lower their interest rates and monthly repayments. It ultimately allows you to extend the length of your term so that your monthly repayments are more spread out.
Some firms will even put you through the process of a streamline refinance without resetting your term, and the main perk is that it can be personalized to your financial needs.
If you aren’t backed by the government, you can look into its conventional equivalent, the rate-and-term mortgage refinance.