When it comes to buying a home, most people opt for a 30-year mortgage. In fact, data from Freddie Mac shows that about 90% of homeowners choose a 30-year fixed-rate loan. And it makes sense — this particular loan option has the benefit of the lowest monthly payment and the stability of knowing how much you’ll owe each month due to fixed rates.
But because of the longer loan terms and slightly higher interest rates, 30-year mortgages can also be costly. On a $250,000 loan with a 3.5% interest rate, you end up paying more than $150,000 in interest.
Luckily, there are plenty of ways to save money on your 30-year fixed mortgage. In this article, we’ve rounded up some of the best money-saving tips.
And remember, you don't have to choose a 30-year home loan. Many people think a shorter loan term will be unaffordable, but shorter terms come with low mortgage rates. Thanks to the interest savings, you might be surprised by how competitive the monthly payment on a 15-year fixed-rate mortgage can be. Visit Credible to see what rates you might be eligible for on a shorter-term mortgage.
1. Refinance your mortgage to a lower interest rate
Refinancing your current mortgage is one of the best ways to save money over the life of your loan. Mortgage and refinance rates have reached record lows over the past year, making it a great time to refinance. Many homeowners have been able to shave a full percent or more off their mortgage rate, which will potentially save them tens of thousands of dollars over the life of the loan. Use an online mortgage refinance calculator to see how much you could save.
Wondering if refinancing might be right for you? You can visit Credible’s marketplace and compare refinance rates across mortgage lenders. You can see multiple loan options without having to fill out multiple forms.
2. Make biweekly mortgage payments
Making biweekly mortgage payments is a tried and true method to save money on your home loan. When you pay your mortgage every two weeks instead of every month, you ultimately make a full extra payment each year, which can shave years off your loan. The other benefit of this method is that you can have your extra payment go entirely toward principal, knocking out your loan even faster.
To get started, contact your lender and ask if they have a system for making biweekly mortgage payments. Some lenders may charge a fee for this payoff method, so it’s important to ask about your options before switching from your monthly mortgage payment.
3. Put windfalls toward your mortgage
Even if you can’t afford to put extra money toward your mortgage regularly, you can still pay off your loan faster. Many of us receive cash windfalls throughout the year, and you can use those windfalls to make extra mortgage payments.
Examples of windfalls include tax refunds, bonuses at work, inheritances or large gifts. A one-time payment may not seem like it will make much of a difference. But when you add up many small windfalls over the life of your mortgage, they really add up.
4. Switch from a 30 to a 15-year mortgage
A lower interest rate isn’t the only potential benefit of refinancing your current mortgage. You could also refinance from a 30-year to a 15-year mortgage to save even more. First, because you’re paying your loan down more quickly, interest has less time to accrue. As a result, you pay less. And in most cases, 15-year mortgages come with lower interest rates than you could get with 30-year fixed mortgages.
Using Credible’s online marketplace, you can get prequalified rates with mortgage lenders to see what your 15-year rate would be if you decided to refinance.
5. Eliminate PMI
Private mortgage insurance (PMI) is an additional monthly cost you’ll have on your mortgage bill if you have a down payment of less than 20% when you buy your home. PMI is particularly common for first-time homebuyers who have FHA loans.
In most cases, PMI will automatically fall off when your loan-to-value ratio reaches 78%. But you can have it removed even sooner. First, you can request that your servicer cancel your PMI once your loan balance falls to 80% of the home’s value.
You can also have your home reappraised if you think your home has increased in value. In a rising housing market like we have today, homeowners may reach 80% equity even faster due to an increase in their home’s value. You can pay for an appraisal, and if you’ve surpassed 80% equity, your servicer will be removed.
Ready to start saving on your home loan? Refinancing your mortgage is one of the best ways to reduce your monthly payment and lower your interest rate, which saves you money in the long run and helps you meet your financial goals.
Visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.
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