Mortgage savings can be done in a number of ways

Here are some tips on how to save on your mortgage

Buying a house is expensive; the average house in the United States not costs more than two hundred thousand dollars. By the time you make the payments over 30 years, the amount you pay, with interest, could approach six hundred thousand dollars. The notion of paying the better part of a million dollars for a place to live would astonish most people. After all, most Americans are not rich. But most of the payments you make over time are not loan principal, but interest. The bank must make money on your loan and 30 years is a long time to lend money to someone. While few consumers would begrudge their lender the right to earn a living, no one wants to pay any more interest than necessary. What can you do to decrease that amount?

There are a number of things you can do to lower your mortgage costs over time. Here are a few of them:

Refinance your loan - This one is commonly used. Most people still take out fixed-rate, 30 year loans. If you happen to buy when interest rates are high, you can retire your mortgage and take out a new one if the rates go down. During the last five years, rates have seen lows not seen in decades, and millions of consumers took the opportunity to refinance at rates that dropped to the vicinity of five percent. That’s quite a change from the late 1970’s, when interest rates topped 15% for home loans. There are costs associated with refinancing, but if you plan to be in your house for a few years, the savings will more than justify the costs.

Make extra payments - You can send your lender extra money at any time, and ever single extra dollar that you send will help reduce your interest. Most of your monthly payment is interest for the first few years of your loan, but any extra that you send will apply to the principal. The interest payment is calculated on the remaining principal, so if you reduce that, you reduce the interest. Even a small extra payment can make a huge difference. You can also try to make one extra payment per year; that will take several years off of the life of your mortgage and save you thousands of dollars in interest. Arranging with your lender to make a half payment every two weeks instead of one full payment per month will accomplish the same thing.

Drop your private mortgage insurance - Private mortgage insurance, or PMI, is a fee added to your monthly payment to protect your lender should you default. This payment, which averages about $40 per month per $100,000 borrowed, is generally required for loans that exceed 80% of a home’s value. Should your equity increase to at least 20% of the value of the property, you can usually get your lender to drop your PMI. Your lender won’t just do it; they will require proof of value through a property appraisal. The few hundred dollars that you pay for the appraisal will pay for itself in less than a year.

These are just a few of the many ways that homeowners can reduce the cost of buying a home over time. There are others, and we will discuss them in a future article.