Save Money on Your Home Loan

Possibly one of the biggest accomplishments anyone experiences is the day a home is purchased. Once you have built up your finances and are ready to put a down payment and settle into a homeowner’s lifestyle, the next steps are critical in actually obtaining that excellent property.

To assist you in making the best choice, here are a few steps to follow that should guide you through the process and make you aware of what to look for.

1. Understand Mortgages

Educate yourself on the different types of mortgages available and what suites your financial situation the best. The two major types of mortgages are fixed interest rate and variable interest rate. A fixed interest rate has a set interest that does not fluctuate and is typically the lowest risk to choose.

This is also comfortable because you know what your monthly interest payment will be and are never surprised by changes to your home loan. Adversely, a variable interest rate is dependent on the market and how it changes. Though this is a high risk, the positive side is that if the market rate goes down so does your interest rate.

2. Research Lenders

Once you understand the type of loan you want, finding a lender that will provide you the best loan is the next step. When researching a lender, many times it is beneficial to speak with a mortgage broker. The broker has the ability to compare all the types of loans available for your specific financial situation and will be able to explain all of your options clearly and unbiased.

As the broker wants your business and wants your best interest in mind, whereas some of the banks have been known to be cold on the customer service front as they sometimes want to place you in a product & move on to the next customer.

3: Avoid Private Mortgage Insurance, PMI

Private Mortgage Insurance (PMI) is usually required when you get a loan that covers greater than 80% of your buying price. PMI is an extra insurance to cover the lender in case issues arise and to ensure they get their full loan amount returned. To avoid having this extra payment tacked on ñ strive to make at least a 20% down payment.

If you currently have PMI, make sure you drop it as soon as you have 20% in equity. This will save you a lot of money in the long run that could have been put towards paying off the debt faster.

4: Make Payments More Often

A great option when paying your mortgage is to split your monthly payment into fortnightly payments. So every fortnight you will pay half the required monthly payment and end up paying 26 half-payments which convert to about 13 months of payments.

To assist you in repaying your loan quickly, request your lender apply the extra payments to the principal amount rather than the interest. By adjusting your payment slightly you could shave off 6 years of repayment from a 30 year loan. If you are able to pay a little bit more every week, you could take off even more years!

Andrew Black has been working in the finance industry for several years. He helps people to find the best low doc loan and refinancing solutions.

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