Whether you just purchased a home for the first time or are refinancing your current mortgage by taking out a new loan, the first thing you must be thinking about is how do you reduce your monthly payments. With all the good that comes from owning a new home, like having a larger space for a family to grow old, many fees and additional costs are involved. Monthly mortgage and insurance payments, along with the annual property tax payments, add extra stress and financial burden to families.
Many may also question the current turbulent state of the economy, interest rates, and the unforeseen changes to the housing markets, which is all the more reason to learn how to save on your mortgage.
1. Make Bi-Weekly Payments, Instead Of Monthly Payments
Paying your monthly mortgage payments in two installments – half every two weeks- will ultimately reduce the total interest needed to be paid on your loan. The two main advantages of this are that home equity or the percent of the home you own increases earlier in the repayment process. This will also enable you to pay off your loan sooner by making an extra payment every year.
However, most mortgage lenders require a tight payment schedule if you want to repay your loan this way. Lenders are more stringent about the conditions of paying back a loan bi-weekly rather than monthly. Additionally, lenders may only allow you to do this if you agree to it when initially taking out your mortgage.
2. Reduce Your Loan Period
If you decide to take out your loan on a shorter term, you will have to pay more monthly, but your home will be repaid much sooner. Most people interested in this option take out a mortgage for 15 years instead of the standard 30-year mortgage.
Additionally, you will have to pay less interest on your home in the long run and will have a greater home equity share than someone with a 30-year loan. This is especially important when considering using the equity gained to potentially purchase a new construction in Bucks County, PA.
3. Make Extra Payments At The Beginning Of The Loan Period
Interest grows upon itself, so if you choose to make extra payments in the first few years of repaying your mortgage, more of your payment would apply to the principle in the later future. Consider paying the bank back 13 or 14 months’ worth of mortgage payments annually, with extra payments at the end of the year. You can also consider renegotiating your terms or simply paying a greater monthly amount instead of making extra payments.
4. Improve Your Credit Score
If you haven’t already purchased a home or are currently considering purchasing one, you may want to wait until your credit score improves. People with lower credit scores have more difficulty taking out a loan, especially one with more favorable conditions. By paying back old debts, credit card bills, or outstanding fees, banks and financial institutions see you as a more reliable investor and have greater faith in your ability to pay back your mortgage.
5. Consider Refinancing Your Mortgage
It may seem redundant at this point to bring up the fact that paying more upfront usually is your best option for saving money. Simply put, most Americans aren’t capable of budgeting more money for their monthly mortgage payments while balancing other expenses and savings. However, that isn’t your only option.
Refinancing your mortgage is the perfect option if you want to pay off your current loan with a new one. This is especially true if you have improved credit since taking out your previous mortgage. Under the right conditions, a refinanced mortgage may result in better terms for you, such as a more fixed or reduced interest rate.
Purchase Your Home With A Professional Realtor
Whether you’re looking to pay down your mortgage to purchase a new home or are a first-time home buyer, only Bucks County Real Estate Agents can better guide you with your home purchasing options. Whether you are purchasing or selling, contact Paul Gunter RE/MAX Centre for help.