How To Save Money On Your
Mortgage
by Tom
Levine
Obtaining a home
loan is arguably the most expensive
transaction you’ll experience in your lifetime.
Therefore, getting the best home at the greatest
value is an endeavor worth pursuing. Whether you’re
trying to squeeze in to a higher priced home or just
trying to shave a couple bucks off of the closing
costs, this article will help you explore your
options.
Here’s a
list of our top 7 things you can do to cut corners
and save money on your mortgage
- Shop Rate!
- Shop Fees!
- ARMs
- Balloons
- Interest
Only
- Incentives
- PMI
1. Shop
Rate!
Sometimes the
obvious just needs to be stated out loud: Lenders do
not charge the same rate. Some charge more, and some
charge less.
- Obtain
several loan offers for consideration, and
compare the rate.
- If a
lender offers you an unusually low rate,
check for fees, points, and additional
charges or changes in terms.
- Don’t
fall into the trap of just going with the
largest bank on the block. Do your homework
and check your lender’s background and
reputation, but open your doors to all the
choices that are available to you.
Obtain 3 or 4
loan offers, and check to see how the rates being
offered compare to the current interest rates. Our
website offers a directory of resources and a
ratewatch, and there are many other websites
available to you through your favorite search engine
that offers similar, free information.
2. Shop
Fees!
Lenders
charge different types of fees in varying amounts.
You may see them stated as “points”,
“origination fees” or “costs”. Whatever name
is used, they represent the lenders’ profit. Some
lenders are willing to earn less, and some lenders’
charge more in fees.
- Obtain
3 or 4 loan offers and compare the quoted
closing costs.
- If you
see unusually low interest rates, check to
see if there may be unusually high
origination fees or points being charged.
- If you
don’t see any fees or points being charged,
then check the rate and terms of the loan to
see that it meets with your satisfaction.
Always
compare fees and rates in conjunction with one
another, and never settle for just one loan quote
when shopping for a mortgage. Your home loan is just
too important not to do your own homework.
3.
ARMS:
An adjustable
Rate Mortgage, in the right economical climate, can
be an excellent way to lower payments.
- With an
ARM, the lender agrees to charge you a lower
interest rate. This can save you hundreds of
dollars off your monthly payment.
- Often
times an ARM carries a fixed period where the
rate cannot change, such as one year for
example.
- If
interest rates stay low, then an ARM can
offer you an attractive way to obtain
affordable real-estate and save money.
A word of
caution: There are many variables to consider with an
ARM, and it is important that you understand them
before signing on the dotted line. Our website has an
excellent article available to you; entitled “Is an
ARM Right For you?” should you wish to explore this
option in further detail.
4.
Balloons:
Another way to
lower your monthly house payment is by structuring
your loan using a Balloon, or by “floating a
balloon”.
- The loan
is amortized over a given period, say 30
years, but there is a final lump sum due at
the end of a fixed period, and this is called
the “balloon payment”.
- This fixed
period is typically between 5 to 10 years.
- This type
of loan lowers your monthly payment, but be
prepared to make new decisions when the fixed
period is up, because your loan ends at that
point.
Consider
floating a balloon with caution, of course. Use this
to compare against ARM loan products, to determine
which one may be right for you.
5.
Interest Only:
With an
Interest Only Mortgage, you are only obligated to pay
interest.
- This first
phase of the loan, interest only obligations,
is typically 5 to 10 years.
- After
that, the loan is fully amortized for
principal and interest.
- So, for a
30 year fixed, that would mean that interest
only payments are available the first 10
years, and then principle plus interest
payments must be paid for the remaining 20
years.
- Typically,
this type of loan is very attractive for
folks in commission-based employment, or
where revenue is cyclical. In other words,
you can up your payment to pay off principal,
when it’s most convenient for you.
Once again,
this is an excellent loan product to lower monthly
payments, and it can be compared to ARMS and floating
Balloons.
6.
Incentives:
Are you in
the market for a brand new home? If so, check to see
whether or not your builder offers incentives, such
as the following.
- The
builder may pay additional points to help you
lower your rate.
- The
builder may offer cash-back credits.
- The
builder may offer savings if you go through
their own or recommended lender.
Builders are
motivated to get their homes sold, so of course they
can go build more. This allows you an opportunity to
save money either in the purchasing of the home, or
the back-end closing costs.
7.
Closing Costs:
Take a look at
all your closings costs, to see if there are
additional savings that can be made:
- PMI:
Property Mortgage Insurance is typically
required when you have less then 20% to put
down. However, laws change all the time and
homes can rise in value quickly. Check to see
whether or not you have the right to have the
PMI removed now or down the road.
- Discuss
all the closing costs. Find out whether some
of them may be negotiable.
- Review the
charges for a variety of other significant
closing costs, such as Title Fees, Credit
Reports, etc., and compare with your other
loan offers.
We’ve enjoyed
providing this information to you, and we wish you
the best of luck in your pursuits. Remember to always
seek out good advice from those you trust, and never
turn your back on your own common sense.
__________________________________________________
Disclaimer:
Statements and opinions expressed in the articles,
reviews and other materials herein are those of the
authors. While every care has been taken in the
compilation of this information and every attempt
made to present up-to-date and accurate information,
we cannot guarantee that inaccuracies will not occur.
The author will not be held responsible for any
claim, loss, damage or inconvenience caused as a
result of any information within these pages or any
information accessed through this site.
About
The Author
Tom Levine
provides a solid, common sense approach to solving
problems and answering questions relating to consumer
loan products. His website seeks to provide free
online resources for the consumer, including
rate-watch, tips and articles, financial
communication, news, and links to products and
services. You can check out Tom's website here: http://loanresources.net , or you can email
Tom at info@loanresources.net.