How to Save Money on Your Mortgage

Posted by Ian on April-22-2011 under Save Money, Save Money on Home

All homeowners at some point ponder ways of saving money on their mortgage. For many it is a huge quandary that brings loss of sleep, frequent visits to the bank and a partner who, “just doesn’t seem to understand.” Buying a house or block of land is never simple. Many young couples believe it is as simple as taking out a loan and paying a deposit – we all wish it was that simple. Instead, interest rates are discussed; land taxes are chewed over and finally, the mortgage repayments are decided. Fortunately, there are ways that allow you to save money on your mortgage, without necessarily needing refinancing, or applying for another mortgage. Let’s take a look at some of these mortgage saving ideas.

mortgage

Switch to Biweekly Mortgage Payment:

Bi-weekly mortgage repayments are nothing new, however many shy away from making mortgage payments every other week because they have convinced themselves it is some sort of scam – it is not. If, for example your monthly mortgage repayment is $500.00, paying $250.00 every other Friday or payday, would put you ahead on repayments by the end of a 12 month period – you would actually have extra money. We have already written about biweekly mortgage payment in detail. Banks, for the most part, are not flexible enough to allow you to pay every other week – it screws up their system and bankers hate having a screwed up system. You are able to dodge this anachronistic way of thinking by placing the bi-weekly payments into a new account and at the end of each month, pay as you would normally from your old account. Does that make sense? Paying into this new account every other week will amount to 26 weeks over one year, which in turn will mean that you have paid 13 monthly mortgages; thus you’re ahead. With this extra money, you should inform the bank that you want it applied to your principal balance. Don’t allow the bank to screw up your payments by incorrectly issuing you a repayment penalty. If you choose to use this bi-weekly mortgage repayment system, you will be cutting a 30 year loan down to a 24 year loan. You can check out these Biweekly mortgage payment calculator to gauge exact savings in your case. A bi-weekly repayment system is an excellent way to save money on your mortgage. The drawback is, you have to be diligent and completely disciplined; resisting the spending temptations all of us suffer from.

Use “Seller Concession”

Another mortgage saving idea is making use of something called “seller concession”. This saver unfolds in the following way. If a house owner offers you his or her house for $200,000 and you accept that price, ask if he or she would accept a 6% seller concession. You will, in fact, pay $212,000 however the extra 12,000 will come back to you via sale closing costs, realtor fees and other miscellaneous expenses. This means that you have included the aforementioned closing costs in the mortgage. Interestingly, these closing costs are often tax deductible, thus making the extra costs to close the deal, tax write-offs. Through this scheme you’ll not be hit with any extra cash payments. The seller has no reason to refuse this method as he or she still receives the originally, agreed-upon price. It is important to have the dwelling appraised prior to offering the owner a “seller concession” and based on the appraiser’s estimation of the house’s value, you are able to adjust the percentage accordingly.

Transfer Mortgage of Previous Home Owner

You are also able to “assume the mortgage” on the house you are looking into buying. This basically means, taking over the existing mortgage from the owner. This method is profitable if the existing mortgage has a very low interest rate. You will also be avoiding various administrative headaches that inevitably pop up with any house or land sale. In order to take over a mortgage you must check whether the mortgage is transferable. You must also make sure you have the wherewithal to cover the purchase price and monies owed. You may have to take out a secondary loan. Should you be forced to take out another loan, you’ll still be saving as the initial mortgage is probably on a low interest rate. However, if you have a very good credit history, and banks are already offering you a lower interest rates, then transferring existing mortgage might not be the best option for you.

Go for “Seller Financing” option

Seller financing is a method of paying the seller for the house or land directly over a period of time. This system allows you to avoid the added costs incurred with a bank loan. You may also be able to negotiate a lower interest rate as well as administrative fees. Indeed, using this system makes it a lot easier to buy a house or land, especially if you suspect you will not qualify for a bank loan. You’ll also be able to side-step expensive mortgage insurance. If you are planning to get a loan through a mortgage lender, always remember that these companies compete with each other. This means, the interest rates on loans is not necessary what the lender would have you believe. The best move is to gather as much information on current interest rates and mortgage repayments, as you can and use this information as negotiating ammunition. Decide what type of loan and repayment system or scheme you want. Many mortgage lenders as well as banks, will adjust their “policies” in order to get you as a client. In short, be prepared to ask, or even demand, better repayment or interest terms. For example, asking for a quarter percent reduction of the published interest rate is not unreasonable. Having an excellent credit rating is also very advantageous when negotiating the interest terms and repayment conditions.

Finally, if possible try to clear the loan’s interest as quickly as possible. Some people pay for twenty years and believe they have been paying off the loan; not the case, only the interest has been paid. With that in mind, find out from various sources, how to get the interest on a loan out of the way within a few years. There are many financial institutions that are able to advise you on the best methods. If you are able to increase your biweekly / monthly mortgage payments a bit, that can reduce your loan tenure drastically. Try to save money on electricity bill, or save money on household expenses, and add those savings to your mortgage payments.

The above suggestions are just some of the many other methods available to save money on your mortgage, all you have to do is spend a little more time researching and looking for the loop-holes in the system – they’re there.




Article Source(s): 1, 2, 3

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