4 months ago
Buying a house has become the most significant expense in people’s monthly budgets these past eight years. Saving money on mortgage payments has become an essential survival skill. If you, too, check the mortgage amount on your bank statement regularly and wonder what life would be like if you were a mortgage-free homeowner – this guide is for you.
Your dream came true: You are about to be a homeowner. Instead of paying rent on a property that will never be yours, you now pay mortgage installments and control your financial security.
But if you’re cash-strapped, like most of us, you must save as much money as possible on your mortgage. Otherwise, you’ll end up with debts, and without a roof over your head.
Well, worry not, we have come up with four smart hacks to reduce your monthly mortgage payments and cut the overall cost of paying for the home you bought.
And here they are:
Hack #1: Refinance Your Mortgage
When you refinance a mortgage, you simply pay off your existing loan by replacing it with a new one, in the hopes of enjoying more competitive conditions.
Homeowners choose to refinance their mortgage for three reasons:
Whether you decided to refinance your mortgage to deal with a financial crisis or invest a large sum of money somewhere else – take a few minutes to consider your goal. Do you want to lower your monthly payments? Do you need to decrease your long-term cost? Or maybe, you’re looking to do both.
When decided, ask yourself these two questions:
A quick calculation will answer question number two (there are many online mortgage calculators you can use). Refinancing is a good idea if it helps you take control of your monthly bills. The money you will save can be used for short-term stuff like paying off a debt or long-term plans like retirement.
Now, granted your credit score is pristine, you can search for the best mortgage lender and refinance. Apply to several lenders to see who offers the lower rates. Keep in mind that even if the rate is lower than what you pay right now, it means the term will be longer.
Important to know: There are costs associated with refinancing your mortgage. Make sure you consider all the fees and can afford them.
Hack #2: Modify Your Existing Mortgage
If you already pay a mortgage, pay careful attention.
Your financial state continually changes. There are hardships along the way, and you should be able to rethink your expenses when needed.
If you find yourself in a financial pickle, get on a call with your mortgage lender and check if you qualify for a mortgage loan modification.
Any long-term loan can be modified (or rescheduled), as per the agreement you signed with your mortgage lender. This way, you can reduce your interest rate to as little as 2%, extend the loan period to up to 40 years, and even switch from an adjustable-rate mortgage to a fixed-rate one.
If you don’t qualify for a mortgage modification, or your lender/servicer doesn’t have this program, check your eligibility for any other aid programs that can help you modify or even refinance your mortgage.
Important to know: Your mortgage modification may be added to your credit report and impact your credit score. We’re not talking foreclosure-level credit score, but it could affect your ability to qualify for future loans.
Talk to your mortgage lender representative. You can always go back to the regular scheme.
Hack #3: Add One Extra Mortgage Payment Every Year
Think about it. If the lifestyle you’re leading isn’t WAY over budget – you can allocate a one-time payment every year to decrease your overall mortgage load.
Think of it as a yearly bonus you’re giving to yourself.
You will actually save money this way. By paying just one extra payment per year, you will save thousands of dollars on interest and a couple of years off your mortgage.
We know this is an aggressive strategy. But if your goal is to pay your mortgage super fast, try it.
If you see you can’t handle it, talk to your mortgage lender representative. You can always go back to the regular scheme.
Hack #4: Drop Your Private Mortgage Insurance (PMI)
If you paid less than 20% downpayment on your home, you are required by law to pay PMI. It is usually between 1-5% of the entire annual payment, charged once a year.
And it’s a good thing since it protects you from future crises. But it does increase your monthly payments and put a strain on your expenses.
So how can you save the extra $100-1,500 a year on PMI?
As soon as you obtain 20% equity in your house, you can immediately cut out the private mortgage insurance. You simply petition your lender to do so. The law obliges them to drop the PMI when you reach a balance of 78% of the home’s value.
Some lenders offer an 80/10/10 program, which enables you to borrow 80% on the primary mortgage, and then borrow another 10% as a second mortgage loan. It eliminates the 20% downpayment rule and frees you from the need for insurance.
Important to know: To qualify for an 80/10/10 program, you will need a 700 or higher credit score.
Paying Your Mortgage – Mission: Possible!
Want to know the quickest way to cut your mortgage down to zero?
Pay cash for 100% of your next home!
Yeah, that’s rarely a relevant option. So if you, too, are not a real estate mogul and lead a normal life like the rest of us, try these four money-saving hacks to ensure your mortgage does not take control of your financial future.
Remember: A home is so much more than a home. It’s an important investment that secures your well being, retirement, and children’s future.
Brian E. Murphy
Brian E. Murphy