How to Save Money on Your Mortgage?

How to Save Money on Your Mortgage?
Getting a mortgage can be the most expensive transaction that you will experience in your lifetime. That’s why you surely need to try to get the best home at the greatest value. Doesn’t matter if you want to buy a higher price home or just save some money on the closing cost, this article will help you.

Here are 7 things you can potentially save on:

1. Rates

It is known that lenders do not charge the same rates. Some offer lower rates than others do.

Just obtain several mortgage offers and compare the rates. If the rate is unusually low you need to check for additional fees, points, charges and changes in terms. Making a deal with the most well-known lender in your area right away is not always the best thing to do. Do not disregard any possibilities that you have. Spend some time on checking potential lender’s background information and reputation, too.

You need to obtain some 3 or 4 offers and compare their interest rates to the current on the market. Information on current interest rates is free and can be easily found on the Internet on related sites or through your favorite search engines.

2. Fees

Lenders charge many different types of fees in varying amounts. They can be stated as “points”, “costs” or “origination fees”, but whatever name is used they represent the lender’s profit. Some lenders earn more on rates, and some lenders are willing to compensate their attractive lower rates with higher fees.

Obtain 3 or 4 mortgage offers and compare their closing costs. Again, if the interest rate is unexpectedly low you might want to check for unusually high origination fees or points. If there is nothing stated on closing costs than you need to check weather the contract terms and interest rates satisfy you.

Remember: your home loan is extremely important for you, so don’t think that you are wasting your time comparing rates and fees. Never settle for just one loan quote instead of going through all possible choices that you have.

3. ARM

ARM stands for “Adjustable Rate Mortgage”. In some cases it can be a good way to lower payments.

With ARM, the lender charges you the lower interest rate. This can greatly decrease your monthly payments and save you hundreds of dollars. Besides, ARM sometimes carries a fixed period where the rate can not be changed, say one year. If the rates remain low, ARM is a good way to get an affordable real-estate and save money.

However, ARM is not always a good choice because it relies on many variables. Before choosing this kind of mortgage you need to understand them all and decide if the ARM is right for you.

4. Balloons

Another way to lower your monthly payments is by structuring your loan using a Balloon. This is also called “floating a balloon”.

This loan is amortized over a given period, for example 30 years, but there is also a lump sum that you have to pay at the end of a certain period, for example 5 or 10 years. Although this type of loan can lower your monthly payments you have to be ready when the end of the fixed period comes because your loan ends at that point.

You need to be very careful considering floating a balloon. Compare it with other loan types, for example ARM, to figure out which one suits you the most.

5. Interest only

With this type of mortgage you only need to pay the interest.

“Interest only obligations” is the first phase of the loan and is typically 5 to 10 years long. After that, the loan is fully amortized for principal and interest. This means that interest only payments are available only during the first ten years, and than you need to pay principle and interest payments during remaining 20 years. This type of mortgage is suitable for people who have commission-based or cyclical income because with it a person can raise payment amount to pay off the principle whenever it is the most convenient to do this.

Once again, this type of loan is good only in some cases. Compare it with other types, such as ARM or floating a balloon, to figure out what suits you the most.

6. Incentives

If you want to buy a brand new home see if your builder offers any incentives, such as paying additional points to help you to lower your rate or offering cash-back credit or savings (if you choose their own lender or the one that they will recommend).

Builders are motivated to interest you in buying their home. This gives you an opportunity to save money, either on purchase itself or on the closing costs.

7. Closing costs

Sometimes there are some additional savings which can be made on the closing costs.

One of them is Property Mortgage Insurance (PMI). It is usually required when you put down less than 20% of the loan. However, homes can rise in price very quickly, that’s why you need to find out if you can remove PMI, immediately or after some time.

Some closing costs may be negotiable, discuss this possibility.

Once again, review all the closing costs and compare them to ones of other loan offers you have. Those may be Credit Reports, Title Fees, etc.

© 2010, Jericho Mortgage — How to Save Money on Your Mortgage?