Methods To Preserve Money On Your Home Loan
Posted on August 2, 2008
Filed Under Mortgage Smarts |
Whether you’re applying for your first home loan or looking to refinance an old mortgage, keep reading for 6 quick and easy tips that you can use to save money on your mortgage.
1. Maintain a good credit rating.
Though often easier said than done, prudent financial strategies will assist you in earning a good credit rating that helps to save you thousands of dollars over the course of your mortgage term. Lenders use your credit score to determine your interest rate, which means that a poor credit rating will translate into a higher interest rate on your loan.
If you’re worried about your credit score, take some time to work on improving it. Even just twelve short months of paying all your bills on time, correcting any mistakes on your credit report, limiting your use of credit, and paying down your bills can improve your credit score enough to qualify for a better loan.
2. Raise a larger down payment.
Because home buyers with limited down payments have to pay a private mortgage insurance premium, you can save a lot by opting instead to take a year, invest, and raise a large enough down payment (usually 10-20 percent) to avoid paying for this extra insurance. Most first-time homeowners who don’t have sufficient funds in savings receive the bulk of their down payments from savings and family gifts.
3. Make principal prepayments.
If you have extra cash and don’t incur penalties for extra payments, pay more than your monthly mortgage payment by using a second check that’s clearly marked “principal prepayment.” Doing this will whittle down your principal a lot more quickly and can save you thousands of dollars over the life of your mortgage loan.
4. Opt for bi-weekly payments.
Instead of paying your mortgage monthly, pay half of your mortgage payments every two weeks. You’ll end making 26 half-payments, which equals 13 payments each year. Though one extra payment a year doesn’t seem like a lot, it can surprisingly shave years off your mortgage and save you a lot of money.
5. Earn interest on deposits.
If you’re buying a home, make sure you get interest on any deposits during an escrow period. Remember, you’re putting away thousands of dollars and the interest on these funds can be substantial, so make sure you’re getting your returns.
6. Shop around.
Before choosing a mortgage provider and locking in on an interest rate, always try to get at least 3 quotes. Have each lender break down the quote on paper so you can easily compare them later at home. Don’t be shy about using available financial tools to help your decision-making.
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