The biggest expense in most people’s budget is their mortgage payment. Mortgage payments can account for 30 to 35% of a person’s monthly income. If you find ways to reduce your mortgage payments, you could wind up saving a lot of money each month. This extra money can be used to fund your retirement account or pay down some bills. Regardless of what purpose you decide to use this money for, it is always a good idea to get a lower mortgage payment whenever possible. Let’s take a look at 5 ways to save money on your mortgage.
Get rid of PMI
PMI stands for private mortgage insurance. Private mortgage insurance is an extra mortgage insurance that lenders require from most homebuyers who obtain loans that are worth more than 80 percent of their new home’s value. The lenders use it to protect their interest in the property. You can avoid paying PMI by putting a 20% down payment on your home using handy mortgage calculators. PMI should automatically terminate once you have paid the loan’s balance down to 80% of the total property value. Contact your mortgage company to terminate PMI. This can easily save you hundreds of dollars annually.
Modify your loan
Lots of people got stuck with bad mortgages during the housing market boom. Some people have interest rates that are so astronomical that it’s causing them to fall behind on their mortgage payments. There is a way for you to get relief. You can either contact the federal government or your mortgage lender and apply for mortgage assistance. Most lenders will be willing to work with you and help you negotiate a lower rate on your mortgage.
Get a property tax assessment
Your tax bill could be incorrect. Your state or province may be overbilling you for the cost of your personal property. You can contact your state’s or province’s department of assessment and taxations and let them know that you are concerned about the amount of money that you are being billed. The government will reassess your property value and in some cases you might be issued a tax refund.
If you are over 62 consider taking a reverse mortgage
Make extra payments
Extra payments are the fastest way to reduce the outstanding balance on your mortgage loan. One extra mortgage payment a year will knock years off of your balance. You can either set up biweekly payments to reduce your balance faster or you can mail in one extra mortgage payment each year. Biweekly payments may be easier because they divide the balance over a two week period which makes making the mortgage payment easier to handle. This is what we have in place and it is definitely manageable.
Get a lower interest rate
One good thing that has come from the recent financial crisis is that interest rates have fallen to record lows. You can get a much lower rate on your loan if you choose to refinance. You will however need good credit to qualify. If you are up to date on your mortgage payments, you can refinance to a much lower rate. Refinancing your loan can save your thousands of dollars a year in interest payments.
Regardless of your financial situation, there are opportunities, like those above, where you can save money on your mortgage.
So, have you saved money on your mortgage? What kind of opportunities have you taken advantage of? Please share.
Just a few warnings on some of these points (as per my experience).
If you do re-negotiate your loan, find a calculator online that figures out if the penalty for breaking your current mortgage + the new rate you will receive is actually better over the term of the loan.
A word of caution on property re-assessment. It is probably best to find out if you have a neighbour who has had a recent re-assessment done to see if there are savings to be had. If you are currently assessed too low you will end up paying more taxes!
@ SPF Good points. Regarding the reassessment, I guess the honesty thing would come into play here. If you are currently paying less in taxes than you should be than that should be rectified. If you are paying more than you should be than that should be rectified too.
The main purpose behind this post was to provide some options for those with large mortgages to look into.
I used a mortgage broker when getting a mortgage. It gives you flexibility from different lenders.
Having really good credit is important.
@ Steve We used a broker too and it helped us get a great rate and yes your credit rating helps a lot. I think we will go with a broker again when we need to renew.