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
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? Call your lender and set up an appraisal. You need at least 20% equity in your home. If the new appraisal shows that you’ve hit that mark, you could be eligible to dump the PMI. Now instead of putting that money to PMI each month, you can put it toward your actual mortgage and pay it down faster.
When it comes to mortgages a one or two percent decrease in your interest rate can have a huge impact, and by huge we mean $20,000 or more. Refinancing can reduce your monthly payment by hundreds, giving you more wiggle room in your monthly budget. You can also refinance to change the term of your loan. Maybe instead of a 30-year term, you switch to 15 and get it paid off faster. Rates are low now, but are projected to raise later in 2017, so if you’re thinking about refinancing, now’s the time to do it.
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. The average consumer saves $24,000 over the life of their loan when they comparison shop with 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.
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.