How Can I Save on My Mortgage Payments?
How Can I Save on My Mortgage Payments?
Mortgage payments can be the single-largest monthly expense for many households, yet there are ways homeowners can reduce the costs of owning their home loan by refinancing or making extra payments – strategies which could save years–if not thousands–in interest payments over the course of your loan's lifespan.
Ways of making payments more manageable may include redirecting windfalls such as tax refunds, bonuses or raises directly toward principal balance, making payments biweekly rather than monthly, and making one additional payment each year.
Refinancing
Refinancing your mortgage can be an excellent way to save money, but it is wise to carefully weigh all of its advantages and disadvantages before making this decision. Refinancing involves taking out a new loan for what remains on your home at more favorable terms than your current one, which may impact your credit score temporarily but should generally not impact it too severely as long as no new credit cards or debt accrue.
Refinancing can also help lower your interest rate or change the type of loan that you have, saving even more in the long run. But beware – refinancing can be costly with closing costs adding up quickly; make sure you do the calculations to ensure that your monthly savings will offset these costs; also keep in mind whether or not there will be enough funds available later for renovations or other expenses.
Paying down other debts
Mortgage payments may be expensive, but it's also essential to get rid of other forms of debt as quickly as possible. Credit card and private student loan debt typically carry much higher interest rates than mortgages do, so paying down these balances early could save money in the long run.
Enhance your emergency savings. Financial experts suggest keeping three to six months' of expenses saved up in an emergency fund; adding this amount into your budget may make covering unexpected costs easier, helping prevent additional debt burden and keeping costs under control.
If you have access to an extra sum of cash that you want to apply toward your mortgage, ask your lender about a recast or lump-sum payment option. While this won't affect the overall length of your loan term, but will lower monthly payments and interest charges significantly. Ensure that any other debts don't impose prepayment penalties before taking this route.
Making extra payments
One extra payment per year can make a significant difference in the length and cost of your mortgage term, shortening it by years and saving you money. Plus, with all that extra cash saved you could use it towards other debt, funding retirement, or investing it!
Make lump sum payments using bonuses, tax refunds or investment dividends; just make sure there isn't a prepayment penalty attached to your loan!
One way is to switch from monthly payments to biweekly. By sending in payments every two weeks instead of once annually, biweekly payments allow for an extra payment each year and may help avoid PMI costs for loans with 20% equity in your home or lower. But this option may not always be best; for example if you have high credit card debt it would make more sense to address that first before making additional payments. It also ensures you have emergency savings reserves.
Paying off your mortgage early
Paying off your mortgage early can save a substantial amount of money, but before doing so you should carefully consider its effect on other debts as well as any potential prepayment penalties from your lender that could diminish any savings from early payoff. If your lender holds extra payments that should go toward principal, make sure they specify this or add a memo when sending payment in order for these extra payments to count towards principal.
Another way to reduce interest is making biweekly payments, the equivalent of making one extra monthly payment a year, which can cut years off of your loan and save thousands in interest charges. You could also increase your mortgage payment or use any cash windfalls like tax refunds, bonuses or credit card rewards towards paying down principal balance. Reducing expenses or increasing savings may prove more challenging for some than anticipated.
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How Can I Save on My Mortgage Payments? Mortgage payments can be the single-largest monthly expense for many households, yet there are ways homeowners can reduce the costs of owning their home loan by refinancing or making extra payments – strategies which could save years–if not thousands–in interest payments over the course of your loan's…