Refinancing is one way to save money on your mortgage, but it’s not the only way. There are some simple ways to lower the overall cost of your mortgage. Here’s how.
4 Ways to Save on Your Mortgage Without Refinancing
#1 Remove Private Mortgage Insurance (PMI)
If you put less than 20% down on your current mortgage, you are likely paying private mortgage insurance (PMI) as part of your monthly bill and it can cost you a few hundred dollars each month.
Once you have 20% of your home’s original appraisal paid or you gain enough equity, you can ask your lender to remove PMI without refinancing. Once your mortgage balance falls to 78%, your mortgage lender may be required to remove PMI but being proactive and paying down your principal faster – or even paying for a new appraisal – can save you a few extra months of PMI costs.
If you want to increase your savings even more, take your saved PMI costs and put that money into extra payments on the principal of your loan. You’ll save yourself thousands in interest over the length of the loan and won’t feel a difference in your monthly payment.
#2 Set Up Bi-Weekly Payments
If you have room in your budget and want to pay your loan off more quickly, then you may want to consider bi-weekly mortgage payments. With bi-weekly payments, you’ll split the monthly cost of your mortgage into two, smaller payments. By paying a half mortgage payment every two weeks, you’ll automatically make an extra payment each year and possibly save thousands of dollars in interest payments off your mortgage.
Some lenders will offer a biweekly payment program, but others don’t. The good news is that even if they don’t, you could still opt to send in payments every other week (or set this up through a recurring payment draft). Provided you have been on time with the regular payments, you could be chipping away at interest without being concerned about late fees.
#3 Extra Payments (Amortization)
With an amortizing loan, most of your payment goes toward interest in the early years of the loan. In the later years, more and more of the payments go to your balance (or principal).
If you’re comfortable financially, you can help pay down your loan more quickly by putting extra payments toward your principal. Using amortization and prepayment calculators, you can find the “magic number” you want to pay each month to shorten the life of your loan to whatever length of time fits your long-term financial goals as well as your monthly budget.
You can even go so far as making large enough principal payments each month to pay off a 30-year loan in 15 years without refinancing. And if you’re ever tight on cash, place a hold on the extra payments until you’re comfortable adding them back to your routine.
#4 Find Monthly Savings to Put Toward Your Mortgage
If you don’t want to commit to an extra amount each month, you can choose to do so here and there and it’ll still add up. Next time you get birthday money, your tax refund, a holiday bonus or host a garage sale, put the extra funds toward your principal. Even though $50 may not seem like much it can add up when it comes to years of interest.
Look at your monthly budget and see where you can cut. If you normally pay for unnecessary items like new clothes, eating out and entertainment, plan to cut those down and use the extra savings for your mortgage. If you start to remove items from your budget, such as canceling your cable or finding savings with a new service provider, take those funds and put them toward your principal balance. You may not feel a difference in your monthly budget and you’ll be saving thousands by the time your loan is paid off.
Another easy way to pay your home off early is looking at your variable costs each month, such as home utilities. If you typically budget for high seasonal bills, check the difference each month and put the extra savings into your home instead.
To make it part of your monthly routine, set a reminder at the end of each month and look at your budget to see how much you’re comfortable adding to your principal payment. And always make sure you note that your extra payments should go to your principal/balance and not your bill for the following month.