Getting a mortgage has a big impact on your monthly income and budget. Many homeowners can imagine what they can achieve with the money if they do not have a mortgage to pay. There are several things you can do to save more on your mortgage and be able to achieve more savings. Refinancing is not the only option you have to save on your mortgage.
- Get a shorter term mortgage
Consider going for a 15-year mortgage rather than a 30-year mortgage. Although this will make your monthly payments higher, you will be able to pay off the mortgage faster and save more money on your interest payments over the long term. One thing to bear in mind is that if you are already far into your 30-year mortgage term, it might not be wise to refinance because lenders tend to amortize. They do not like to wait to get their money. So at the start of the mortgage term, the payments you make go into paying off the interest rather than the principal. Switching to a 15-year mortgage could, therefore, cause you to pay the lender more interest.
- Make higher monthly payments if you can
According to mortgage lenders in Kingston, Ontario, you can pay off your mortgage faster and save on your interest payments over the long term by making extra payments monthly, or just make one large payment per year. You should, however, be clear about the way extra payments apply to your mortgage. Your lender should be informed that the extra payments you make are meant for the principal of the loan and not the entire loan so as to avoid having them apply it to the interest of the following month. You can get your lender informed by indicating in the memo while writing a check, that the funds are to be applied to the principal. You can do so electronically by checking the box that says “apply toward principal”.
Making bi-weekly payments does not mean that the mortgage company would use part of the early payment towards the principal and the other part toward interest. Mortgage companies usually hold on to the money until the complete monthly payment has been made after the next two weeks. Mortgage companies that allow bi-weekly payments to charge an extra fee, which ends up costing you more.
- Recast your mortgage loan
When you pay a lump sum toward the loan principal by doing a recast on your mortgage, you reduce your principal balance, which in turn reduces your monthly principal and interest payment. It resets or re-amortizes your monthly payments based on the new lower amount due.
Recasting does not require any income verification or credit check. Since it is not considered a new loan, it does not come with any closing costs. However, it often comes with a charge. Recasting is a good option for homeowners with bad credit, homeowners who are buying a new home before selling their current home, and self-employed homeowners.