Buying a new home is a monumental decision for any person, and it’s easy to feel overwhelmed by this huge financial burden. While the prospect of home ownership is enticing to many people, failing to prepare for mortgage payments will lead to more harm than good. That’s why it’s important to know some techniques on saving some money on your mortgage.
5 Tips to Save on Your Home Mortgage
Did you know that you can adjust your monthly mortgage commitments and significantly reduce the effective cost of your new home? The following strategies can help you save big on your mortgage.
[You may also find our infographic on saving on your mortgage here.]
- Keep your credit profile clean
Financial institutions will trust you more if you don’t have bad debts. If you have clean credit, you will be able to enjoy a lower interest rate, and lenders may adjust your home loan payments to make it easier for you to pay.
If your current credit status doesn’t look well on paper, make sure that you can find ways to improve your credit before applying for mortgage.
- Avoid PMI with a large down payment
The cost of private mortgage insurance (PMI) may run around the 0.5% to 1% range. That’s a hefty $2,000 annual payment if you plan to take out a home loan of $200,000!
Fortunately, there’s a legal way out of this: Prepare a down payment of at least 20% of the total property price, and you should be set free from PMI payment obligations.
- Ask for loan modification
If you’ve already incurred some delays in paying your mortgage, your best option is to have your loan modified. Look for financial institutions and other interest groups that offer loan modification programs to either reduce your interest rates, lower monthly payments, longer loan period, or financial support for the principal amount.
- Have your mortgage refinanced
When considering to have your mortgage refinanced, you may look at it in two ways – either reduce the amount of monthly payments, or bring down the overall cost in the long term.
Bottom line: you cannot enjoy them both. If you want your monthly payments lowered, the pending amount may be spread in later payments through an extended loan period. On the flip side, looking at lower long-term expense may lead you to pay more in a shorter amount of time.
The best way to maximize this strategy is to ask loan professionals about mortgage refinancing, reduction of overall property cost, and other details on property ownership.
- Consider downsizing
At the onset of your loan application, make sure that you’ve studied all of your options, especially in terms of your ability to pay for a home purchase. Having said that, consider buying a smaller but more affordable home before applying for the loan.
If you’ve already bought a home via financing, you may opt for downsizing. By selling your current home to buy a less expensive property, you will effectively bring down your monthly and long-term expenditure.
Buying a home in cash will always save you loads of money. However, if you cannot afford to shell out a huge sum of cash for a home purchase, being wise in applying for a mortgage will still allow you to save money in the process.