In general, your mortgage payment will account for your highest monthly money outflow
Mortgage amount – $200,000
Mortgage type – fixed rate mortgage
Repayment term – 30 years
Interest rate – 6%
Monthly repayment amount – $1,199 (principal plus interest)
Pay One Installment Extra Every Year
If it is possible the easiest and the best means of saving money is by paying one installment extra every year. The extra amounts paid are deducted from the principal amount and not interest. This means that you will save on the total interest that you will be paying towards the loan. One additional payment of $1,199 every year can result in savings of $47,000 interest and reduce the term of the loan by five years.
Make Bi-Weekly Payments
Another way of saving money on your home loan is by making bi-weekly payments. Keep away 50% of the monthly mortgage payment amount in a savings account on your pay day or every other Friday. Make use of this account to pay your mortgage. In a year, you would make about 26 half payments or 13 full payments. This is equivalent to making one extra payment every year. Therefore, the savings will be $47,000 annually. Most people manage their accounts themselves. However, you can hire companies that provide escrow service to manage your payments.
Reduce Your PMI
Many people are constrained to make payments towards private mortgage insurance (PMI) as they go for a down payment of less than 20 percent. If you also belong to this category, then you can request the lender to cancel the PMI as and when your mortgage balance comes below 80% of the appraised value of your home. This situation is possible only if the value of your home has appreciated or you have paid back a part of the principal. You may have to do a new appraisal, but you could save hundreds of dollars in monthly payments. If you made a down payment of just 5% and the PMI rate was 0.78%, you could save as much as $130 per month.
Fight Property Assessment
You pay thousands of dollars as property taxes. If you believe that the value of your home has declined last year and that was not accounted for properly, then you must take it up with the assessor and fight for the reduction in value. The savings will be reflected in the annual taxes. The savings could vary on the basis of local tax rate as well as home adjustment. However, you could save hundreds of dollars in a year.
Reset Your Mortgage
Some lenders will allow you to reset the monthly payments that you are currently making if you make large payments against principal of the loan amount. As the loan amount has now reduced, the monthly payments are recalculated by the lender. You will be making lower monthly payments over the rest of the loan period. If you repay $20,000 of the principal, the monthly payment could be reset to $1,079. This ensures a saving of $120 every month.
Modification of Your Loan
If you are experiencing financial difficulties and are delaying your payments, then you may qualify for modifying your loan terms (rate, period or principal balance) so as to make it affordable. You can check with your mortgage services or visit the website Making Home Affordable to see if you qualify. The savings vary on a case to case basis. The interest on the loan could be brought down to 2%, the term extended to 40 years or the principal could be reduced.
Refinance Your Mortgage
Refinancing your mortgage is another option that could be considered to save some money. You can switch over to another lender who is ready to offer a lower interest rate. However, there may be costs associated with refinancing. Therefore, you must make sure that you are saving enough to pay for the refinancing charges. You could visit websites such as Zillow Mortgage Marketplace which allow you to compare loan programs, rates, lender ratings and reviews. You can ascertain if the switch makes sense prior to contacting a lender. If you can lower your interest rate to 5%, your monthly payment comes down to $1,073, providing a saving of $126 per month. Even if the refinancing charge is $5,000, you could recoup in 40 months.