Many people dream of owning a home. Since real estate is a massive investment, a lot of people need a mortgage loan to make this dream a reality. If you’re mulling about buying a house for the first time or have an outstanding mortgage already, you might want to learn about some top pro tips for saving money on your mortgage.
Carefully Choose Available Mortgage Loans
There are a lot of mortgage loan providers in the market. But many homebuyers, especially first-timers, don’t take their time to check out their options. Before contacting your bank or lender, it is best to get as much information as possible before applying for a mortgage. In New Zealand, sites like mortgages.co.nz/ offer free home loan resources.
Although home loans might look the same, subtle differences could spell huge savings on interest, processing fees, terms, and the like.
To help you evaluate different loan providers and their respective offerings, you can compare mortgage rates here. Besides, you should look beyond big banks when comparing home loans. There are specialist lenders or even smaller banks that offer more competitive mortgages. But if you’re unfamiliar with these companies, do your due diligence as a homebuyer by conducting your research before signing up on a specific deal.
As mentioned earlier, your interest payment is computed using the principal amount of your loan. Thus, making a sizeable down payment is one of the first things that could help you save a lot on interest.
Most lenders require you to deposit at least 20% of the home buying price. However, if you have extra money, you can opt for depositing a more significant percentage than that. Not only will you have a lower principal amount, but you can also make your loan term shorter.
Another expense that you can strike out of your budget if you pay a 20% or higher deposit is the LMI, or the lenders’ mortgage insurance, which can also amount to thousands of dollars.
Pay Extra When You Can
When you enter into a loan agreement, your debt provider will give you an amortization schedule to help guide you on how much you need to pay every month for a specified number of years. If you look closely, you’ll realize that interest payment is calculated based on the remaining principal amount of your loan.
So, if you have additional funds, make it a habit to add extra payments to your home loan every year. Additional payments will not only help pay off a mortgage in double quick time, but they will also result in savings on the total interest payments of your loan.
Another pro tip that should help you save money on your home loan is refinancing at the right time. Interest rates fluctuate, so you may have gotten the best interest at the time you took the loan years ago, but it doesn’t mean it’s still the best rate you can get at this time.
There are many reasons you should refinance, but potentially saving thousands of dollars in interest payments is the main one. If you’re in a tight spot, refinancing could also help you make lighter payments, shift to longer or shorter loan terms, or even avail of cash out on equity in an emergency. However, if you want to make refinancing work for you, do some research to help achieve your goal.
There are fees linked to late payments. So, even if your lender gives you a grace period to pay your loan, it’s often prudent to pay on or before the due date and take advantage of grace periods for emergencies or during holidays. If you want to save on your mortgage, it’s evident that defaulting on your loan isn’t an option to prevent paying late fees.
For those who have a variable interest type of loan, there will come a time when interest rates fall and your minimum required repayments could also get smaller. Yet don’t be tempted to pocket in the difference. Continue paying the higher amount so you can repay your loan faster and save on further interest.
Consider Frequent Payments
Another tip that only experts may be aware of is increasing the frequency of your payments. Instead of paying your loans once every month, you can speed up your home loan repayment process by doing it every two weeks. This small change will add a number of months’ worth of repayment annually and could help you pay your loan faster and save money in the long run.
Use Your Savings To Pay More
If you have more money saved, you may want to consider putting those savings against your mortgage. Doing this will help offset the interest, but you can still pull out that amount if you need them. So, it’s a win-win. However, before you do this, you must read your loan contract carefully because some lenders put a cap on extra payments per year, while some require you to pay off a fee. Know the terms of your loan before making significant extra payments. Often the fees are small, and your savings on interest will more than offset the cost of the extra charges.
Most people don’t review their mortgages regularly. Once borrowers know the amount they need to pay, they forget about the other details of their home loans. But financial professionals will tell you that neglecting to check your home loan details is a big no-no. So, review your loan to see opportunities where you can save money and even recognize problems.
See If Consolidating Debt Makes Sense
Occasionally, interest rates drop to extremely low levels. During the pandemic, some banks offered lower interest rates to encourage people to take on loans. When an opportunity like this appears, it pays to take advantage of it. If you have other types of debts, you want to combine all your loans with your mortgage. You could save more on interest in the long run and have just one loan payment to think about.
There are a lot of opportunities to save on a mortgage, from choosing the appropriate lender and home financing type to negotiating current financial responsibilities, and it doesn’t matter at what point you are in your home loan journey. Taking advantage of those opportunities entails a lot of work, such as comparing and reviewing your options. However, you’ll reap the benefits of your hard work in the long run.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.