Buying our home is the biggest purchase that we’ve made. When it came time to buy our house, I was nervous about how expensive a mortgage could be in the long run. Interest and other fees can cost homeowners hundreds of thousands of dollars over the life of a loan.
Despite this daunting fact, there are many smart strategies that you can use to reduce your mortgage payments and the overall cost of paying for your home. Below are just a few of the steps we’ve taken that have saved us thousands of dollars on our mortgage.
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One of the most effective and budget-friendly ways that we were able to save and pay down our mortgage more quickly was making bi-weekly payments. Bi-weekly payments are simply your mortgage payment split in half, paying the first installment after week No. 2 and the second installment after week No. 4. It actually works out so that you end up making an extra payment each year, and the impact is substantial.
In the two years that my husband and I decided to switch to bi-weekly payments, we’ve already saved $5,000 in interest and 10 payments. If we continue at this rate for the duration of our loan, we will save an additional $13,500 in interest and 49 payments. This simple adjustment will trim off a total of five years on our 30-year mortgage and save us nearly $20,000.
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Round-Up Mortgage Payments
Each time that we make a payment on our mortgage, we round our payment. For example, instead of paying $850 a month, we pay $900. This alone gets us nearly an additional payment at the end of the year. While this is a small amount, in the long run, we’ll make a sizeable dent in the amount owed on our mortgage, while also paying significantly less interest and shaving time off the duration of our loan.
Make Extra One-Time Payments
Anytime we get an unexpected bonus of money, it’s so tempting to go on a vacation or splurge on a new wardrobe, but more often than not we make an extra lump-sum payment towards our principal balance. These extra payments can reap big benefits, knocking down the life of the loan and offering additional savings on interest.
Drop Your PMI
When we bought our home, we had to purchase private mortgage insurance (PMI) because the downpayment on our conventional loan was less than 20 percent. Once we had paid off more than 20 percent of our loan, we petitioned our lender to cancel our PMI. By dropping our PMI, we were able to save upwards of $1,000 a year.
If you’re already accustomed to paying that extra amount (and can continue to do so comfortably), simply put the amount you save from canceling your PMI right back into loan repayment. You won’t feel the difference in your budget, and you’ll make a big difference in the long run.
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