Making monthly payments for a mortgage is certainly a daunting task. Even though it is never enjoyable, it’s a worthy venture for a bright future. This investment goes beyond just a home, if well utilized. You can use it later as security to ensure you and your family enjoy your retirement. Alternatively, you can use it in paying off debt on your credit card. The most important thing when making these payments, though, is to be able to save as much as possible. What, therefore, are the tricks for ensuring maximum savings?
1. Using your home equity wisely
Having a home means more than just shelter. It makes life much easier. You will be able to pay off your debts at more favorable rates and quickly and manage your monthly payments more conveniently. It is less costly to pay off your home than a high-interest credit card. When your debt takes up payments at a higher interest rate compared to your mortgage, it will prove costly in the long run. The secret to defeating this challenge lies in paying off your debt using the equity in your home. You end up clearing your payments faster and accruing less interest.
If it is proving hard to pay off your debt, consider a cash-out refinance. This will help you to refinance the mortgage while getting a cash payment for your home equity. That cash can be utilized in paying off the credit cards or can also be rolled into a mortgage payment. This comes with some benefits such as a lower interest rate and the ability to conveniently make one monthly payment. Better still, this improves your credit score if you happened to have accrued massive debts on the cards. Besides, you’ll get a shorter-term on your mortgage and get the option of faster payment. This comes in handy when you are no longer in debt.
2. Making payment every two weeks
Choosing to make your mortgage payment every two weeks rather than once every month may seem like doing double work for nothing. The truth, however, is that it comes with a double advantage. First, it is more convenient and less painful to part with less money every time you have to pay your mortgage. The real benefit, however, is that you will actually have paid more by the end of the year. If you are wondering how true this is, then look at the following facts and figures.
Every year has a total of 52 weeks. If you are paying half a month’s payments every 14 days, then you will make 26 payments by the end of the year. Converted to monthly payments, this is a total of 13 months’ payment. You shall, in essence, have smartly “created” an extra month and paid for it. In the long run, you have reduced your mortgage cost by quite a considerable amount without feeling the extra pinch. The ultimate impact of this is that you will actually be paying less because the mortgage company will be using these every-two-weeks’ payments to actually reduce the amount of interest you owe. Over a few years, this can save you thousands of dollars.
You have, however, to be very careful to confirm first that your easy loan lender allows you to go for the biweekly payment schedule instead of the monthly payment option. If you do not take a close look into this, you may end up paying more than what you should. Carefully compare the benefits with any penalties involved, and decide wisely.
3. Making extra payments
This means that you can opt to pay some money over what you are required to pay, so as to quicken the completion of your mortgage. Sometimes, you may find it challenging to make biweekly mortgage payments, but at other times, you might have a few extra dollars around. Using your holiday bonus or any other windfall that comes your way to pay your mortgage will save cash over the long run Even adding amounts as small as $50 will go a long way in reducing the interest owed on your mortgage loan. Interest on $50 may not seem like much, but on a 15 or 30 year mortgage at today’s rates, it would surprise you
4. Going for an ARM
An Adjustable Rate Mortgage is ideal for anyone who does not intend to live in his or her home for long. Assuming you will move within five years, ARMs will help you to minimize the amount in contributions that you have to pay for that time by minimizing the rates for this period. In other words, it means you end up “passing” on a greater part of the burden at the next phase of your mortgage. After the five years, the rates will turn variable, allowing it to catch up with the prime rate.
However, this strategy may not work well for someone who intends to stay in his/her home for more than five years. It is possible that the rates will not remain as favorable in five years as they are now. In the case that the rates soar, refinancing into a different fixed loan can do more harm than good. You will end up paying higher interest rates.
Many people fear to go for mortgage loans because of the false notion that they are very expensive and difficult to repay. However, the truth is that if you employ these strategies smartly, you will end up with a far smaller, and more manageable, repayment load.