If you learn a few ways to save money on your mortgage, you can literally save hundreds of thousands of dollars over the next couple of decades. A lot of times we don't realize how much a mortgage really costs us in the long run, we just think of it in terms of how much we're paying out each month.
To get a better big-picture perspective, let's look at a few numbers.
Using the Yahoo! Real estate page, you can use their calculator to figure out how much your monthly payments will be (not including taxes or PMI) and how much interest you will pay over the course of a mortgage.
If you use a $150,000 beginning balance on your mortgage and get a 5% interest rate for 30 years, you end up paying about $140,000 just in interest! So essentially your house almost doubles in price.
Do you see the benefits of knowing ways to save money on this mortgage? Think about how much you can save if you're buying a much more expensive home!
So let's get started with a few things you can do.
The first and most important thing you can do is RESEARCH. When you start looking to buy a house, looking at 2-3 houses isn't enough. In fact, looking at 10-15 houses isn't even enough! To really get a feel for the local market, try to look at 100 houses or more. A lot of this can be done online, so you don't have to worry about touring around houses for the rest of your life!
Investors often say that money is made when you buy, NOT when you sell. In other words, its much better to get a great deal at the beginning than to buy and hope later the house increases in value. This goes for either an investment or buying your home. The more research and better deal you get upfront, the better your chances of having it be a success.
Another thing is to make sure you don't buy a house that's outside of your price range. Experts used to recommend that you never buy a home worth more than 3 times your yearly income, but now some are even saying 2 years. So if you make $75,000 a year, don't buy a home that costs more than $150,000.
This is primarily to protect yourself from having to foreclose if you lose your job. Hopefully with a lower monthly payment, you have more money to save in case of emergencies.
So let's say you're already in your home and are looking for ways to save money. You basically have two main options (and you can combine them).
One option is to remortgage your house. Usually people do this to get a much lower interest rate, so they're paying less each month. The only way this really works is to use the new mortgage to pay off the old mortgage. Some people will take out the new mortgage and only pay off part of the old one. This is a very bad idea, because you're now paying two mortgages each month!
Using numbers to illustrate how this saves you money, let's say you got a $150K mortgage at 5% interest for 30 years. That means you're paying about $805.23 per month. If you were able to remortgage the house for 4%, now you're only paying $716.12 per month. That extra $90 may not seem like much, but it adds up over the year.
The other main way to save money on your mortgage is to pay if off early. You can either send in a payment every 2 weeks (instead of one per month), or you can add on 10% to each month's payment and make sure the bank puts it towards principal. Just doing this little trick can help you pay off the loan in about 23 years instead of 30, saving you tens of thousands of dollars (or more).
Right now this might seem like a stretch, but chances are if you try it you may not even notice a big difference. Then when your house is paid off much more quickly, you'll be glad you did this!
Good luck, I hope this taught you some ways to save money that you can put into practice.
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