This is a guest post from Lender411 who allows consumers to compare today’s mortgage rates in their area instantly and for free online, consumers are also matched with 4 local lenders who can take care of their specific mortgage needs and compete for their business.
Money flows in a lot of different directions when you buy a house. There’s the down payment, the mortgage interest, the closing fees, and numerous other costs. But there are ways to save money in the midst of the chaos.
Compare your options. Don’t pick a loan package until you’ve thoroughly researched at least five or six different offers. Check out rates, fees, and terms. Get a Good Faith Estimate (GFE) from any lender you are seriously considering. A GFE itemizes every cost associated with the mortgage so you can see exactly how much the deal will cost. Lenders are required by law to provide this document to you if you request it. Don’t be afraid to negotiate, either. It’s not hard to find the best mortgage rates if you’re willing to take some time and do some research.
Get a shorter mortgage. The shorter your mortgage term, the less money you’ll pay in the long run. You can save literally hundreds of thousands of dollars, depending on your overall loan amount, by going with a 15-year mortgage instead of a 30-year mortgage. This has been financially proven over and over again. If you can afford to make slightly higher monthly payments, get the mortgage with the shortest term possible.
Assume an existing mortgage. If the seller of the home has not paid off the current mortgage, you might be able to simply take over the existing mortgage. If the mortgage is transferrable and the seller agrees, you could end up with a significantly lower interest rate. Of course, you need to guarantee that the interest rate on the existing mortgage is lower than the interest rate you could get on a new mortgage, and you’ll still have to pay the difference between the home value and the current mortgage balance, but you may be able to save a substantial amount of money in lower interest over the years and you may not have to pay any closing costs at all.
Skip the mortgage insurance. If you’re a risky borrower, some lenders may require you to pay for mortgage insurance before the loan closes. Once you’ve taken out the mortgage and you’ve made a few payments, however, your lender will likely allow you to drop the insurance. This can save you a great deal of money.
Pay off your mortgage early. You’ve heard this one before. If you can scrape enough money together, make extra payments on your mortgage as often as possible. Tell your bank to apply these extra payments directly to the principal of the loan. In effect, this shortens the term of your mortgage, which will lower the amount of interest you’ll have to pay over the course of the loan, as mentioned above. Make sure your mortgage won’t penalize you for early repayment, however. This is common. Try to arrange a deal that allows for this. It’s staggering how much you can save.
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When we got our loan, we chose to do the following:
Skip the mortgage insurance (by having a large enough downpayment)
Pay off your mortgage early (initially we were making double payments)
Get a shorter mortgage (we dropped our 30 year fixed down to a 15 year fixed)
@Money Reasons – Very smart strategies. I’m not sure that when I finally purchase a property I’ll be able to snag a 15-year vs. a 30-year mortgage (starter homes around here start around $300K), but if I can somehow swing it, I will!
It really is amazing how much interest rates fluctuate between banks. The last time I got a mortgage I saw up to a 1% difference between banks. That’s big bucks over 30 years.
For my primary mortgage, I started with a 30 year, paid extra, then refinanced to a 15 and paid off in total after 10 years. I’m very happy we bought less house than we could afford.
Great tips, I agree with the mortgage.. A lot of my friends (even a very financially wise friend) ended up getting 35 year mortgages but say they are paying it down like a 25 year mortgage… which I don’t understand.
I would rather do a 25 year mortgage and pay it down like a 15 year mortgage. I think that 35 year mortgages are just way too long.
I suppose that’s because 1 BR condos here cost 500K!! =(
.-= youngandthrifty´s last blog ..BC Common Law couples to get Marriage Rights =-.
@Sandy L – That’s another great tip; buy a house for less than what you can afford. I also think that refinancing to a 15-year then paying it off earlier makes sense.
@Young and Thrifty – If real estate is as overpriced in BC as it is here in SoCal, then I can see why your friends weren’t able to take on a 25-year and pay it down as a 15-year. For instance, if a modest home is $395,000, a 15 year mortgage would require monthly payments of $3,072 a month at a 4.75% interest rate vs. a 30-year at a 5.25% interest rate at $2,181 a month. That’s a huge difference in monthly payments.
One thing about the mortgage insurance – If it is required when you get the loan, there are usually guidelines set in place as to how long you have to keep it for and what qualifications such as equity in the home you need to have before you can remove it. Just ask your lender what these are before you get your loan to compare your options.
Sometimes you can take out a first and second mortgage at the same time to avoid mortgage insurance and your payments wind up being lower. It’s case by case though and that is why you should compare your options
Jason