Here are few things to remember that can help you save money on your mortgage:
- Negotiate before the fact – It never hurts to try to negotiate with a lender for a better rate or a waiver of fees (particularly fees like the document preparation fees, or the lender’s attorney fees). The “real” costs of the loan include the appraisal, title fees, processing fee, private mortgage insurance, credit report fees, and inspection fees. These are all things the lender makes no money on. The rest of those fees do equate to more money in your lender’s pocket (and less in yours).
- Choose the right type of mortgage – A 30-year fixed-rate mortgage is the most expensive type of mortgage you can get—UNLESS you’re going to stay in your home for many years. Think about how long you will be in your home and choose the type of mortgage that makes the most sense and offers the lowest payments for the years you will be in the home.
- Make extra payments – Extra payments go directly to the principal of the loan. This means that the actual principal of the loan is knocked down by that extra amount you pay, rather than having the bulk of your mortgage payments paying interest. By doing this, you could reduce your mortgage by almost 10 years simply by making one additional mortgage payment each year.
- Bi-weekly payments – Just as making an extra payment will shorten the life of your loan, so will shifting your payment schedule to bi-weekly as opposed to monthly. This schedule builds in an extra payment each year without it “feeling” like an extra payment. Your mortgage payment can simply follow your paycheck schedule — if you get paid every two weeks, that is. With bi-weekly payments, a 30-year fixed mortgage will be paid off in about 23-and-a-half years.
- Avoid PMI – Try to put in at least the minimum 20 percent down payment so you can avoid paying private mortgage insurance. If you are already paying PMI, make sure you watch your equity and drop the PMI once you hit 20 percent.
- Make sure paying points will save you money – In some cases, paying points can save you money, but not always. Quicken has a points calculator that shows you how points will impact your interest rate and monthly payment. Make sure that what you pay will be recouped within the time you plan to spend in the home.