With average mortgage rates hovering at all-time lows, now could be a great time to restructure your loan, regardless of whether you have a conventional loan or are looking at an FHA or VA refinance. You might even be able to roll your closing costs into the balance of the loan so you don’t have to pay them up front.
However, there are also ways to rake in the long-term savings just by your changing payment habits or other simple things.
1. Make extra payments
Paying bills isn’t very exciting. However, just one extra mortgage payment per year, can significantly cut your payments. During the early part of your loan, most of your payment goes toward interest charges. An extra payment will all go toward the principal on the debt.
Here’s an example. Imagine you had a $200,000 30-year fixed-rate mortgage with an interest rate of 5 percent. If you started in January 2013, you would pay roughly $1073 each month until 2043. The total of all your payments would actually be more than $386,000.
However, it’s very different if you made an extra mortgage payment of $1073 at the end of each year. You’d be mortgage free in mid 2038 – nearly five full years earlier. Those 25 extra payments would end up saving you more than $31,000 over the lifetime of the loan.
2. Cut your payments in half
No, we’re not encouraging you to not pay your bills here. It’s actually just a variation of the first method that may seem less painful.
Your mortgage payment is due every month. That means you make 12 full payments each year. However, there are actually 52 weeks each year. Therefore, if you make half of your mortgage payment every two weeks, you will actually make 13 full payments each year.
Put half of your mortgage payment into a savings account every two weeks, and then make a payment from that account every four weeks. Your balance will start dropping faster than you might realize.
3. Ask for a new assessment
With some loans, your monthly check may also go toward an escrow account for your local property taxes. While it doesn’t go to your lender, it still makes your monthly payment that much higher. But there’s nothing that says you need to blindly follow what the value your town gives your home.
Home prices have change all the time. If values in your area have fallen, then you might be paying too much for your taxes. If that’s the case, contact your town’s assessment office to determine how to get your property reassessed. It may cost you a fee, but it might also be worth it.
If your value is lower, then your taxes will drop and so should your bill. What you do with the extra money is up to you. You could even put it toward your mortgage balance if you want.
Be aware however, that the tax amounts could go up should the town find your property has appreciated. However, even if that happens, it’s not the end of the world.
4. Eliminate private mortgage insurance
If you initially made a down payment of less than 20 percent on your home, then you may have needed to pay for mortgage insurance, through either the Federal Housing Administration or a private insurer. However, once you get above that 20 percent threshold, you may be able to drop it.
Look at your most recent statement and see what the balance left on your loan is. Compare that to your home’s value and see if you’re above the 20 percent mark. If you think your home value has gone up recently, getting an appraisal supporting that could push you over the edge.
If have more than 20 percent equity, then you may be able to ask your lender to stop requiring mortgage insurance payments. If you’re not there yet, see how much you would have to pay to get there. If you can manage it, dropping that mortgage insurance payment off your mortgage bill could be worth it.
In any case, take the time to examine all of your options. If you want to see if you could save some money on your monthly loan payments by refinancing, contact a Freedom Mortgage representative to review your options.
About the Author
Specializing in FHA mortgages, VA mortgages, and low interest refinancing rates, Freedom Mortgage has been a leader in the mortgage lending space for more than 20 years. With pride in their customer service, tips for first-time homebuyers, and payment calculators, Freedom Mortgage helps their customers select the right mortgage or refinancing option to meet their needs.
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