Buying a home is perhaps the biggest expense you will incur at some point in your life. Real estate today is expensive, and in the current market conditions, the terms for home loans are not favorable for people from the middle class. Despite this, people still prefer buying a house as the investment will give them more control over their household expenses. You wouldn’t have to worry about paying rent and dealing with a difficult landlord. A home loan with a favorable rate of interest and a reasonable repayment tenure can be manageable in the long term.
Four simple ideas to reduce the cost of mortgage
Avoid Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is applicable to home loans that exceed 80% of the property value. Under the terms of the PMI agreement, you will pay 0.5% to 1% of the total borrowed sum to protect the lender. To avoid paying PMI, it is advisable to pay more than 20% of the property value as the downpayment. Alternatively, you can avail of 80/10/10 credit programs available with some lenders. The program allows you to borrow on 80% of the primary mortgage and avail another 10% as a second mortgage from the same or different lender. So, you will not need to pay PMI charges with the 80/10/10 mortgage scheme. Note that applicants who have a credit score of 700 or above are eligible to apply for this mortgage scheme.
Refinance your mortgage
If you already own a house and are struggling to repay your home loan in a systematic manner, a mortgage refinance can help. There are two major benefits of opting for a mortgage refinance — you can reduce payments and long term costs of availing the new home loan. At the same time, it is important to consider the total cost of refinancing including components like appraisals, fees, and taxes that might be applicable in some states. Here again, the best mortgage refinances options are available for people who have a high credit score.
Make extra payments
It may sound a bit weird that you can save by paying extra. However, if you can afford to pay more than the minimum amount due on your home loan, do it! The extra payment will reduce the interest over the tenure of your home loan. After a refinance, you might be in a better position to pay more than the minimum due. So, make the most of the revised repayment schedule, interest rate, and the monthly installment.
Insurance premium and taxes
There are ways to bring down your homeowner’s insurance if you already have one. If not, you can always consider a cheaper option by comparing quotes online. Property tax is yet another amount that you cannot avoid, but you can reduce the amount of tax by having a property assessor review the value of the home and recalculate the tax.
