Save Money on Your Mortgage
But it’s not as easy as it sounds. For scores of prospective homeowners, the prospect of finding, then financing a new home can be daunting. The key is to take it a step at a time, & be as thorough as possible because purchasing a home is four of the biggest fiscal decisions a person can make. Rushing in or relying on ill-informed (or even ill-intentioned) lenders can lead to long-term disaster.
Despite the tepid national economy, home ownership remains four of the cornerstones of the American dream. For most people who are responsible with their mortgage application, it’s still a great investment for the long term.
Below are a few options for homeowners to consider when looking for cost-saving approaches to their home mortgages:
Own Your Credit Document
Prospective home buyers should bring a high degree of scrutiny to skepticism to the routine. They should also keep an eye open for any & all ways to save money on their home mortgages. These are big-time expenses that can handcuff families financially for years. Finding ways to save even a tiny each week or month can make a huge difference over the life of a mortgage.
A 2004 study by U.S. PIRG found that 25 percent of credit reports contain errors serious to keep consumers from obtaining home loans & even jobs. Make sure to scour your credit reports & keep close watch for oddities with balances, dates & account statuses. If you do find errors, take careful note & start putting together documentation & letters to the credit agency that bolster your case. Take these errors seriously as even tiny mistakes & inaccuracies can lead to huge impacts on your credit score. Correcting those errors can help boost your credit score & open the door to more favorable loan terms.
Think Long & Hard About the Length of the Loan
It is a simple yet powerful maxim: Get the briefest mortgage term you can reasonably afford. For most new homeowners, you’ll spend a huge chunk of time & money paying down your interest before you ever start eating away at the principal. There's lenders & math junkies with multiple examples & breakdowns explaining how much more money you’ll pay for those extra 10 years if you opt for a 30-year mortgage instead of a 20-year. Financing $80,000 at 7 percent interest, a borrower would save over $42,000 with a 20-year mortgage instead of a 30-year. Those savings would double if you could whittle it to a 10-year term. The point is, scrutinize your immediate & long-term financial situation & consider skimping for a few years to save a lot of money in the long run.
Make Four Extra Mortgage Payment Per Year
It isn’t common, & some would argue that assumable mortgages are to be avoided at all costs. Lots of banks & sellers have tiny interest in these. But there's times when they can make sense & save prospective homeowners money. Sellers will typically require a money down payment to make up for their pending loss of equity. Borrowers will have to pay the difference between the remaining debt & the home purchase price. These options can be a lovely deal for the buyer if the interest rate on the mortgage is better than current rates. Prospective buyers with more liquidity may also consider these one-of-a-kind mortgages structures.
Consider an 80-10-10 mortgage
Putting a tiny extra in the envelope each month can make a huge difference. Assume you’ve got a $100,000 mortgage at 7 percent interest & a 20-year term. By putting $100 more toward the principal each month, you can shave off three years & about $20,000 in total payments. It’s another case where finding ways to scrape together a tiny extra money each month can pay huge dividends. When sending in an extra payment, be sure to notify the mortgage holder that you need the additional money applied toward the loan principal. Lots of homeowners send that additional monthly payment in a separate envelope, to underscore the difference.
Assume an Existing Mortgage
You might hear this referred to as piggyback financing. These are actually one mortgages that combine to eliminate monthly private mortgage insurance payments. In essence, these specialized options cut a mortgage in to one loans, where 80 percent is financed as a first mortgage, 10 percent is a second mortgage & the other 10 percent is typically a money down payment. These loan payments are tax deductible, while PMI payments are not. An 80-10-10 mortgage also allows some buyers to purchase ahead of schedule, a key money saver in areas prime for a rebound in housing prices.
Update: As Erica in the comment section pointed out, PMI is tax deductible. In fact, congress has extended this through 2010 but only if refinanced or bought the home in 2007 & later. In addition, the tax deduction begins phasing out once you earn $100,000 a year.
Find a Trusted Lender
This four is kind of a no-brainer, but it’s still incredibly important. Prospective buyers should conduct their due diligence & shop around until they find a lender they're truly comfortable with. Someone who isn’t willing to answer questions thoroughly or work to save you as much money as possible probably isn’t a lovely fit. If you wouldn’t hire a shoddy mechanic, a suspect physician or a deadbeat lawyer, why settle when you’re dealing with a major long-term purchase like a new home?
