How to Save Money on your Mortgage
When it comes to buying a home, your mortgage matters just as much as the cost of your home. Interest might seem like a small percent, but when compounded over thirty years, it can literally double the amount you actually pay. If you want to lower your payments and pay less for your house, you should consider the many ways you can lower your interest payments by refinancing.
Taking advantage of a changing housing market is one of the easiest ways to lower your interest payments on your mortgage. If you have a fixed interest rate and interest rates are dropping, you can refinance to an adjustable rate or a lower fixed rate mortgage. If rates are rising, you can do the opposite and change from an adjustable rate to a fixed rate; this can keep your interest rates from skyrocketing.
You may be able to lower your interest rate by taking advantage of an improved credit history. If your credit rating was low when you first acquired your loan, you may have a high interest rate. If you’ve been paying your bills on time, your credit may have improved, in which case you might qualify for a lower rate. There are many credit repair companies that can help you improve your credit. Beware of credit consolidation companies, which actually can further damage your credit!
If you have two loans, a first lien and a second lien on your home, you may want to consider consolidating those two liens into one. Many people get equity lines on their homes, but don’t realize that the equity line is adjustable, and often has quite a bit higher interest rate than the first loan. Refinancing the two loans into one can often save money. Another strategy would be to pay down the equity line as soon as possible.
10-year and 15-year fixed mortgages usually have lower interest rates because the loan is getting paid twice as fast as a 30-year mortgage. The down-side is that the payments will be quite a bit higher.
No matter why you decide to refinance, always be sure to speak with several lenders first, or find out who your friends and colleagues use. Good referrals are the best way to find a mortgage professional you can trust. Sometimes brokers may give you a quote that is not what you eventually get. Be sure to ask for a good faith estimate and ask to see proof that your loan is locked at the rate you are quoted to ensure it is the rate you actually get.
Beware of low start rate programs. They are usually not the actual interest rate, and may be simply a teaser or a negative amortization program that defers your interest payment until a later date. This can help lower payments, but not the actual interest rate or amount you’ll owe in the end.
Remember, before you take advantage of any refinancing offer, find out if it will actually save you money. On-line mortgage calculators help determine how much you’ll pay using your new and old interest rates. Then you can just deduct the points and fees (unless they’re included in the new mortgage) and find out how much you’ll actually be saving.