For the average American, a mortgage is the only feasible road map to owning a home. Instead of paying off someone else’s mortgage through rent, you could be paying your own while living in the house of your dreams. However, mortgages can take forever to repay. Moreover, since you will also be paying interest, the amount could easily end up being the largest portion of your monthly bills.
However, did you know that you can save money on your mortgage and pay it off faster? That’s right. By following the tips below, you will not have to spend 30 years of your life laboring for a mortgage. If you do things right, you could shave off five or even ten years of the term.
Read on to find out how to save money on your mortgage.
Trim Your Budget and Stick to It
To begin, re-evaluate your budget. Come up with a detailed budget and follow it to the tee. Most people tend to spend money on things they don’t necessarily need. This is referred to as impulsive shopping.
Figure out your weakness when it comes to spending and try to make things right. For example, if you usually go to the movies every weekend, perhaps you could make it once a month? If you eat out a lot, how about cooking at home every now and then? It’s not like you need culinary skills to boil a bowl of instant noodles or scramble an egg.
You don’t have to be too frugal to the extent of leading a tasteless life. However, you also need to be objective. The same savings you make by ditching poor spending habits will add up fast. After a year, you won’t believe how much you have saved in your “pay off the mortgage early” fund. Allocate these extra savings into your principal. The lower the principal, the less you have to pay every month.
Make Extra Payments Yearly
If your financial situation improves, consider making additional payments on your mortgage every year. This is an effective way of saving money on the mortgage. If your finances are tight, try to uncover where you can make adjustments that will enable you to make extra payments over the years.
Paying as little as $3,000 in extra payment will make a whole lot of difference on your mortgage. After five years, you would have put down $15,000 on the principal.
Is it possible to allocate $3,000 annually for the mortgage when you have other obligations? The idea is to make the payment a yearly thing. You don’t have to pay the amount as a lump sum. You can save all year long on little things, such as going out less, taking the subway, and walking rather than driving.
A Bi-Weekly Payment Plan
A bi-weekly payment plan is an option if you have a limited budget. This is the best strategy for borrowers that cannot make extra payments for their mortgage.
With a bi-weekly payment plan, you will be making payments for the mortgage every fortnight rather than once a month. This means you will be making half of the intended payments, which will still lighten your mortgage burden.
However, discuss with your lender about this payment plan and find out whether you will be liable to pay any extra charges. If there is a cost to be paid, then the plan won’t be worth it.
Petition your PMI
The worst type of mortgage is one that you are approved for without a meaningful down payment. When you do not provide a substantial down payment, you may be forced to pay private mortgage insurance (PMI) to protect the lender.
Usually, negotiating the PMI is not easy. However, if you are already paying PMI, show consistency and eagerness to clear it by making extra payments annually. Once the loan is down to 80% or less, you can petition the lender to cancel the insurance. This could save you hundreds of dollars on your total payments every year.
Get Your Home Reassessed
If you believe that the value of properties in your locale has depreciated, petition for a reassessment of your home as soon as possible. You could end up saving hundreds a year in property taxes just by having your tax lowered.
Your Mortgage Is Tax-Deductible
You can also save money on your mortgage by claiming deductible expenses. Knowing what to deduct will save you some money on taxes. Mortgage interest rates are deductible up to $750,000. To claim deductions, you have to file Form 1040 and itemize your expenses. Claiming deductions would reduce your interest rates and save you a few hundred dollars a year.
Before applying for a mortgage to buy your first home, find out how you can lower your costs. Implementing the above strategies can end up saving you thousands of dollars in the long run.