When you bought your home, you may remember seeing a big scary number at closing the estimated total cost of your new purchase with interest payments included. The total payments amount to many thousands of dollars more than the original purchase price. We recently reached out to Senior Mortgage Banker Jessica Uphoff at Pinnacle Mortgage for these smart tips to reduce the total amount you pay for your house over the life of your loan:
1. Round Your Mortgage Payments Up – The easiest way to pay down the principal on your loan is to round up. If your payment is $1241, you already think of your payment as $1250. Why not just pay $1250? On a $260,000 loan over 30 years, the extra $9 per month contributed towards the principal eliminates six payments. Want to pay it down faster? Pay $1300 a month and cut 30 payments from the loan! You will save approximately $17,000 in interest payments. Every little bit counts.
2. Refinance For a Shorter Term – Most banks offer options beyond the common 30 year loan term. The most popular fixed term mortgage loans are 30 year, 20 year, 15 year and 10 year. Typically the best interest rate deal is the 15 year loan. The monthly payment is quite a bit higher when compared to the 30 year, but the amount of interest you save is shocking.
For example, the payment on a $200,000 loan with a 30 year term at 4.5% is $1013. The payment on a $200,000 loan with a 15 year term at 3.5% is $1430. The $417 additional payment per month is a considerable increase, however you save a whopping $106,448 in interest over the life of the loan!
3. Make Bi-Weekly Mortgage Payments – Pay half of your regular mortgage payment every other week. By the end of the year you will have made 26 half payments or the equivalent of 13 full payments. This amounts to one extra principal payment per year. That extra principal payment will shave roughly 5 years from your loan. Most banks offer bi-weekly payment options, so just ask!
We hope these tips save you a ton of money. Please share your thoughts and comments below!