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How To Save Money On Your Mortgage
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
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.
Publisher's Directions:
This article may be freely distributed so long as the
copyright, author's information, disclaimer, and an active link
(where possible) are included.
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
Copyright 2004, by LoanResources.Net
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 [email protected].
MORE RESOURCES updated Tue. June / 06 / 2023
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