You don’t have to be an expert to save money on your home loan, just interested enough in the concept to understand a few ideas that may work for you.
The debate on whether you should rent vs. buy, or pay ahead on your mortgage vs. invest in retirement, pay off more expensive debt, invest in life insurance, or even save for a child’s education are all individual circumstances that won’t be covered here, but are good topics to investigate more if you’ve wondered about them. If you want to consider other factors like the cost of a dollar today vs. tomorrow and tax write-offs, these scenarios might be left for a discussion with a financial advisor.
For now let’s focus on some tips that can be done now, in today’s economy and current legislation.
- Ask your current lender to modify your mortgage for free.
- Refinance to a lower rate at another bank
- Refinance to change your term
- Leverage your credit at local banks
- Move / Downsize
Under President Obama’s stimulus plan aka the federal Making Home Affordable Program, homeowners may be able to modify their mortgage, reduce their interest, refinance, defer payments or even transition out of their loan/home without foreclosing. Many lender websites reference this plan and you may be able to reduce your payment by taking advantage of this program. This program was extended in January of 2012 to offer help through December 2013, so even if you pursued this option once unsuccessfully, it may be worth trying again.
As always, check rates keeping points, term, and other factors the same across lenders. Other lenders may offer lower rates, especially if your credit is good. Try local lenders vs. the “big banks” for more flexibility with rates.
Reducing the term (loan duration) will usually raise your monthly payment but can offer significant savings over the long term. Likewise, raising the term will usually lower your monthly payment, but cost you more over the long haul. Assess your situation and determine whether an opportunity exists for you. Do you need lower monthly payments to help ends meet now? Or do you want to reduce the amount of overall interest you pay in the duration of your loan? Make sure to do the calculations yourself, as you’d be surprised how much interest can add up over the typical 30 year loan, vs. a 20, 15, or even 10 year one.
Everything is negotiable, even your loan. If you have excellent credit, you may be able to refinance at no cost by demonstrating you are a safe risk. Consider that the lender you approach is making nothing off of you now, as you are not yet their customer. If you refinance your house with this new lender, they stand to make a substantial amount over the loan term. If you represent a safe risk (stable salary, excellent credit), you might be able to negotiate the terms of your refinancing.
This option is likely only available to individuals who are not upside down in their mortgage (meaning, to those who owe less than their house is worth), and who have savings to cover the loss. In some cases if you sell your house at a loss and downsize, you still may reduce your overall loss than just staying/paying the same payment or risking foreclosure. Other considerations like school zones, security, etc. will all be a factor in deciding if this option is viable.
Net, be proactive to take advantage of the lower rates currently available and the stimulus program. Check out the Making Homes Affordable Program with your existing lender to see if the program can help with your situation. Lastly, if you have good credit, leverage it to see if you can negotiate the terms of a new loan.