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: Tom Levine
Obtaining a home loan is arguably the most expensive transaction you’ll experience in your lifetime. Therefore, getting the best home at the greatest value is an endeavor worth pursuing. Whether you’re trying to squeeze in to a higher priced home or just trying to shave a couple bucks off of the closing costs, this article will help you explore your options.
Here’s a list of our top 7 things you can do to cut corners and save money on your mortgage
- Shop Rate!
- Shop Fees!
- ARMs
- Balloons
- Interest Only
- Incentives
- PMI
1. Shop Rate!
Sometimes the obvious just needs to be stated out loud: Lenders do not charge the same rate. Some charge more, and some charge less.
- Obtain several loan offers for consideration, and compare the rate.
- If a lender offers you an unusually low rate, check for fees, points, and additional charges or changes in terms.
- Don’t fall into the trap of just going with the largest bank on the block. Do your homework and check your lender’s background and reputation, but open your doors to all the choices that are available to you.
Obtain 3 or 4 loan offers, and check to see how the rates being offered compare to the current interest rates. Our website offers a directory of resources and a ratewatch, and there are many other websites available to you through your favorite search engine that offers similar, free information.
2. Shop Fees!
Lenders charge different types of fees in varying amounts. You may see them stated as “points”, “origination fees” or “costs”. Whatever name is used, they represent the lenders’ profit. Some lenders are willing to earn less, and some lenders’ charge more in fees.
- Obtain 3 or 4 loan offers and compare the quoted closing costs.
- If you see unusually low interest rates, check to see if there may be unusually high origination fees or points being charged.
- If you don’t see any fees or points being charged, then check the rate and terms of the loan to see that it meets with your satisfaction.
Always compare fees and rates in conjunction with one another, and never settle for just one loan quote when shopping for a mortgage. Your home loan is just too important not to do your own homework.
3. ARMS:
An adjustable Rate Mortgage, in the right economical climate, can be an excellent way to lower payments.
- With an ARM, the lender agrees to charge you a lower interest rate. This can save you hundreds of dollars off your monthly payment.
- Often times an ARM carries a fixed period where the rate cannot change, such as one year for example.
- If interest rates stay low, then an ARM can offer you an attractive way to obtain affordable real-estate and save money.
A word of caution: There are many variables to consider with an ARM, and it is important that you understand them before signing on the dotted line. Our website has an excellent article available to you; entitled “Is an ARM Right For you?” should you wish to explore this option in further detail.
4. Balloons:
Another way to lower your monthly house payment is by structuring your loan using a Balloon, or by “floating a balloon”.
- The loan is amortized over a given period, say 30 years, but there is a final lump sum due at the end of a fixed period, and this is called the “balloon payment”.
- This fixed period is typically between 5 to 10 years.
- This type of loan lowers your monthly payment, but be prepared to make new decisions when the fixed period is up, because your loan ends at that point.
Consider floating a balloon with caution, of course. Use this to compare against ARM loan products, to determine which one may be right for you.
5. Interest Only:
With an Interest Only Mortgage, you are only obligated to pay interest.
- This first phase of the loan, interest only obligations, is typically 5 to 10 years.
- After that, the loan is fully amortized for principal and interest.
- So, for a 30 year fixed, that would mean that interest only payments are available the first 10 years, and then principle plus interest payments must be paid for the remaining 20 years.
- Typically, this type of loan is very attractive for folks in commission-based employment, or where revenue is cyclical. In other words, you can up your payment to pay off principal, when it’s most convenient for you.
Once again, this is an excellent loan product to lower monthly payments, and it can be compared to ARMS and floating Balloons.
6. Incentives:
Are you in the market for a brand new home? If so, check to see whether or not your builder offers incentives, such as the following.
- The builder may pay additional points to help you lower your rate.
- The builder may offer cash-back credits.
- The builder may offer savings if you go through their own or recommended lender.
Builders are motivated to get their homes sold, so of course they can go build more. This allows you an opportunity to save money either in the purchasing of the home, or the back-end closing costs.
7. Closing Costs:
Take a look at all your closings costs, to see if there are additional savings that can be made:
- PMI: Property Mortgage Insurance is typically required when you have less then 20% to put down. However, laws change all the time and homes can rise in value quickly. Check to see whether or not you have the right to have the PMI removed now or down the road.
- Discuss all the closing costs. Find out whether some of them may be negotiable.
- Review the charges for a variety of other significant closing costs, such as Title Fees, Credit Reports, etc., and compare with your other loan offers.
We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.
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