Posted by Kait Spurrier ● February 17, 2020

How to Save Money on Your Mortgage: 5 Essential Tips

how to save money on your mortgageBuying a home will likely be one of your largest financial decisions. It is important to speak with a professional lender to make sure that you are not overpaying on your mortgage. Here are 5 essential tips for how to save money on your mortgage:

  1. Consider an adjustable rate mortgage (ARM). Are you planning on being in your home for 10 years or less? If so, consider an adjustable rate mortgage. The rate will be fixed (typically for a 3, 5, 7, or 10-year period), and then adjust. Your budget can benefit from a fixed payment while your wallet can benefit from the Interest saved each month.
  2. Consider where you are pulling your down payment funds from. If you are pulling money from an investment account, you will first want to speak with your financial advisor (see what the penalties will be, if any). Many times, borrowers want to put at least 20% down on their new home loan. However, in most cases, it actually makes sense to leave some of that money invested. In this scenario, let your money grow (as long as the monthly payments make sense for your budget and the rate of return is higher than your mortgage interest rate). That money will grow faster and give you the option to pay off your mortgage balance more quickly in the future.
  3. Don’t be afraid to refinance. Every once in a while, we see borrowers who are afraid to refinance into a lower interest rate. Refinancing doesn’t mean that you need to reset your loan term to 30 years. Many lenders are willing to customize the term (i.e. a 28-year mortgage). Being in a higher interest rate is just overpaying for your mortgage. Lenders are not able to refinance your loan if there is “no net tangible benefit” to you. That means, something has to improve for you in order for the refinance to be completed.
  4. Don’t assume that a lower interest rate means a lower monthly payment. The one question that consumers are taught to ask is, “What is the interest rate?”. Many consumers are unaware that how you structure the mortgage insurance (required if you put down less than 20% on a conventional loan) can change your monthly payment. In some circumstances, taking a higher rate and structuring your mortgage insurance in a different way can give you a lower monthly payment. Don’t forget that you pay your mortgage in dollars, not in interest rate!
  5. Consider who will go  on the loan , and their qualifications. In many circumstances, one spouse, partner, or family member has a higher credit score than the other. If the scores are drastically different, it may make sense to only have 1 person on the mortgage loan (assuming they can qualify for the sales price of the home you are looking to buy). In many cases, you can add the person who’s not on the loan to the title (or deed to the home). That way, both people have an ownership interest in the home, but you are getting better mortgage terms for the life of the loan.

If you have and questions, or want to talk savings on a more personal level, please feel free to reach out! We can help guide you so you can get the best mortgage that fits your unique needs and wants.

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Topics: Mortgage, Refinance, save money, ARM, Down Payment, Adjustable Rate Mortgage, tips to save on mortgage, monthly payment, lower interest rate