Each and every financially responsible human is keeping track of his/her monthly expenses. Recording your monthly expenses can have two objectives. The first one is to serve the effort to better understand the monthly budget, and the second is to offer the possibility for identification of possible non-value adding expenses that could be decreased or eliminated. One such expense is the mortgage expense, as well as expenses associated with it. The mortgage payments represent one of the biggest, if not the biggest, monthly expenses you have. Thus, finding ways to decrease the costs associated with your mortgage, or even decrease the mortgage, could result in substantial savings on a yearly base.
Hence you should know that there are two things that should be taken into account when looking for ways to decrease your mortgage expenses. Namely, you could decrease the mortgage and mortgage-related expenses by decreasing the principal loan amount or changing loan terms. Stated differently, the ways to save money on your mortgage are:
- Faster repayment of the mortgage, or
- Changing the terms of the mortgage
Save money on your mortgage through faster repayment
A couple of ways to save money on your mortgage can be found in the first category, i.e., the repayment category. You could decrease your mortgage-related expenses if you:
- Make an extra payment – on a yearly level. This opportunity depends on your level of income and saving habits. Meaning that you should know whether you can afford to make an extra lump payment during the year. The extra payment should not have an adverse effect on your lifestyle or living standard. But, making an extra payment each year will lower the outstanding amount of your mortgage loan, i.e., decrease the principal amount you owe. Thus, you will be able to repay your mortgage faster and save on interest expenses. This will lead to faster repayment of the mortgage and faster mortgage-free life.
- Making a bi-weekly payment – has a similar effect as the aforementioned way to repay your mortgage. The difference is that in the previous case, you are making an extra lump sum payment during the year or at the end of the year, i.e., you need extra money. On the contrary, this way does not imply that you will make an extra payment. It implies that you will pay your monthly obligation on a bi-weekly basis. Thus, even though you do not pay additional money toward your principal, the bi-weekly payment by itself will help you to save money on interest expenses and repay your mortgage faster.
There are other strategies that could help you in the objective of paying off your mortgage faster, as well as repaying your debts in general.
Save money on your mortgage by changing mortgage terms
The previous category was considering the faster repayment of your mortgage. On the other hand, ways to save money on your mortgage, explained in this category, are considering the possibility of changing mortgage conditions. Meaning that the second category deals with the possibility of decreasing interest rates, eliminating insurance, reducing the repayment period, and negotiating better terms. Thus, the ways to save money on your mortgage are as follows:
- Refinance your mortgage – gives you the possibility for a double savings. Meaning that you could save money by refinancing your mortgage with a lower interest rate. In addition, you could save money by decreasing the mortgage term and thus make an additional saving on the overall interest expense. This is so, in a sense, that the lower the mortgage life, the lower the interest expense you pay. Make sure that you take into account the costs associated with refinancing a loan.
- Negotiate better terms with your bank – you should be aware that your credit score has a major impact on the interest rate you pay on your loan. Thus, if your credit score has increased a couple of years after taking up the mortgage, you could talk to your lender for possible changes in mortgage interest rate, as well as other mortgage conditions. If the lender is not willing to change the mortgage terms, then maybe you should consider refinancing your mortgage (depending on the possible saving you would make).
- Consider fixing your interest rate – in times when market interest rates have fallen. You could replace the adjustable (variable) rate mortgage with a fixed-rate mortgage. The purpose is to fix your mortgage with a new interest rate that is lower than the one you are currently paying. This could lead to lower interest on your mortgage, thus offering the possibility of saving tens of thousands of dollars depending on your mortgage life. You have two basic options, to refinance or talk to your lender. Tell your lender that you have found a better deal, and ask for a matching deal. Banks do not want to lose existing (loyal) customers. Thus, it might be beneficial for you in terms of saving money on your mortgage.
- Decrease your private mortgage insurance (PMI) – you pay a PMI when your down payment is less than 20%. Thus the lender requires a PMI as a protection against possible foreclosure. You should know that when your mortgage balance goes below 80% of the appraised value of your home, you can cancel the insurance. Most commonly, someone would wait until he/she has repaid the principal until the balance is below 80%. But, there is one more way you could remove PMI in relation to the below 80% balance rule. Namely, check whether the value of your home has gone up. If your home is worth more now, then your mortgage balance could turn out to be less than 80% of the home’s value. Thus, you will cancel the private mortgage insurance without making any extra payments toward the principal amount. Keep in mind that private mortgage insurance could cost you up to 1% of the mortgage balance value each year. Thus, don’t be passive about your insurance. See if you could eliminate the insurance expense and save hundreds if not thousands of dollars each year.
- Check for possible tax decreases – as you probably know, property value can change during the years. This change could be in either direction, either increase in value or a decrease in value. When it comes to saving money, you should be aware if your property value has decreased. This will have an effect on your property tax obligation. If the value of your home has decreased, you should first check if the new value is adequately accounted for in your tax assessment. If this is not the case, then you should contact your assessor and communicate the new property value. This simple communication could result in substantial savings on a yearly base.
You should never neglect the possibility of saving money on your mortgage. Make sure that you are gathering information on a regular basis about:
- Your credit score;
- The value of your home;
- Changes in interest rate;
- Increase in your income, thus increase in your ability to make an extra payment toward the principal amount of the mortgage;
Having adequate information has the potential to save you thousands of dollars each year. Don’t miss the opportunity to save money on your mortgage.