How to Cut $20,000+ Off Your Mortgage
Your mortgage isn’t a one and done deal. What you paid for your first month doesn’t have to be what you pay for the life of the loan. Here are five tips you can use to make sure your money isn’t wasted.
1. Stop paying PMI. Avg Savings = $1,200 Per Year
Ditch your PMI (private mortgage insurance) and you could cut $1,000 or more from your yearly mortgage costs. You have PMI if you put down less than 20% when you purchased your home. Some people go on paying it for years without realizing they may not have to.
How do you cut it? A simple way is to refinance your mortgage. Since home values have risen so much lately, you’ll likely find that the new appraisal will reset your equity above the 20% mark. This will knock out your PMI payments, with average savings of about $1,200 per year. As a bonus, you may even be able to reduce your interest rate while you’re at it!
2. Switch To 15-Year Mortgage. Avg Savings = $90,000
Many homeowners overpay to have a 30 year mortgage, even when they might not need one. 15 year mortgages have many of the same features (fixed interest rates over the term) but come at much lower interest rates. Because you pay them off in half the time, you get charged far less total interest. In fact, on a $200,000 mortgage, moving from a 30 year to a 15 year would save you a staggering average of $92,330 at current interest rates!
3. Make the banks compete against each other
If you don’t have a mortgage yet, or you’re considering refinancing, make sure to shop around. You don’t have to refinance with your current lender if there’s a better deal out there. One of the main reasons LendingTree was created was to give consumers more power and choice by making the banks compete for your business. LendingTree consumers have saved on average $34,000 over the life of their loan by refinancing their home loan through LendingTree. It’s free, fast, and could help you save a ton of money, also, with a purchase that big, it just makes sense. Home buying can be stressful, searching for a loan doesn’t have to be.
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4. Set up bi-weekly payments
Switching to a bi-weekly mortgage payment plan could save you money without putting too much of a strain on your monthly budget. With this plan, you make a half payment bi-weekly. There are 52 weeks in a year, which means there are 26 bi-weekly payments. So you would make a total of 13 full payments in a year, as opposed to 12. That one extra payment adds up: on a $150,000 mortgage you could reduce interest payments by more than $15,000 over the life of the loan.
5. Reduce your assessment
According to the National Taxpayers Union 30% to 60% of homes are over assessed each year. Appealing your assessment can save you thousands in taxes. Each state has their own guidelines for appealing, so check the back of your home assessment notice (usually mailed out in the spring), for specific instructions. Prepare for the process by looking up five to 10 comparable homes in the area that sold in the last six months. Depending on your state, you’ll have between two and six weeks to appeal from the date you received the assessment. If you win the appeal, you could be looking at thousands in savings for years to come.
Bonus – if you’re a veteran, move to a VA loan
Loans guaranteed by the VA can be obtained without a down payment, don’t require mortgage insurance, and there’s no minimum credit score requirement. A conventional loan can even be refinanced as a VA loan—the average savings from doing so is about $3,100 per year. If you’re an active duty member of the military, a veteran, reservist or member of the National Guard, this one’s a no-brainer.