Here are 10 ways to save money on your mortgage. When purchasing your home it would be a good idea to get pre-qualified first to see how much your approved for. This will definitely put you the purchaser ahead of any one else that comes to the negotiation. If you know your approved for say $400,000 then that should be the maximum price you should be looking at when purchasing a home. With that in mind here are 10 ways to save money on your mortgage.
1. Put as much down as you can possibly afford. With mortgage rates at record lows, this can easily lead purchasers into a false sense of financial security. I know what your thinking, 'the interest payments are so low why not use other peoples money and invest the rest?' It is not that simple because those low interest rates are a financial trap set by the banking industry. Their designed to keep you in debt for the rest of your life. Just a half point increase in the interest rate can put those who are on the bubble right now over the line and into power of sale territory. Think of a mortgage as a giant chain, the more you owe, the longer the chain in which to hang yourself, financially. Instead beat the banks at their own game by putting a minimum of 10-15% down. This way you will owe less over a shorter period of time.
2. Shorten the amortization period. The shorter the amortization period the more money that can be shaved off the interest payments. In this case you will own your house faster without any help from the banks. Remember, the bank is not your friend and they can and will foreclose at the first chance they get when you default.
3. Put a balloon payment of about 10% every year on your mortgage, this will reduce the outstanding balance owed to the bank. Think of it as giving yourself a raise because the outstanding balance is being paid down.
4. Renew your mortgage every year. When interest rates fall, you can take advantage of the lower interest rate with another lender or the same lender if you choose. You probably won't pay it off in 1 year, but this ties into point #2 about a shorter amortization period. The payments will be higher yes however, at the same time your kicking more off the principle which is important. Typically in the first few years of your mortgage, the majority of your payments go to the interest and very little principle.
5. Stay with a variable rate to take advantage of lower interest rates. When interest rates do go up they usually go up about 25 to 50 basis points or 0.25 to 0.50% at a time. Usually though interest rates increase by increments of 0.25% which is still cheaper than a fixed rate.
6. Go fixed only and only if rates start rising really fast like 0.25% every 3 months or in a period of rapidly increasing inflation. Otherwise refer to point #5.
7. Shop each lender against each other and squeeze every last penny you can get. You shop for electronics this way, washer and dryers so why not shop your mortgage. It is a good idea to enlist the services of a mortgage broker as they deal with hundreds of lenders. The chances of getting a better deal through a mortgage broker is higher than if you just stayed with your bank. The mortgage broker gets a commission from the lender, so its in their best interest to get you the best deal possible.
8. Watch out for hidden fees like transfer fees, appraisal fees, administration fees which can cost you plenty in the long run. Read the mortgage contract carefully and get the lender to explain anything you don't understand. Also get the lender to waive those fees if they want your business. Remember, the lender is not your friend, just a facilitator in getting what you need: money for your house.
9. Be prepared to walk if the rate and the terms are not to your liking. Your in the driver's seat not the lender. Think of this exercise as a game of poker except you have nothing to loose.
10. Be aware of introductory offers where the lender will give you a teaser rate for say 6 months. After that the rates will be even higher than if you just went for the straight rate. The catch is you will be locked in for say 5 years. What seemed like a good rate at the time will turn out to be even higher.
About Author / Additional Info:
Mathew jazenko is CEO of MRJ Financial Solutions. Questions/comments firstname.lastname@example.org or visit us at http://www.mrjfinancial.ca