You already know that if you borrow money, you are going to have to pay the interest as well. The question is, do you know how much exactly you are paying in interest? For most people who are paying their 30-year mortgage at 4% interest rate, they find that they end up paying almost as much as the loan principal by the time they finish the loan.
However, not many know that there are actually ways to save money on mortgage interest. Here, MidAmerica Bancorp, Inc. shares how you can do that:
Opt for Bi-Weeklly Mortgage Payments
Paying every two weeks adds one all-principal payment to your mortgage every year. It’s because instead of taking 12 payments annually, the bi-weekly payment plan adds up to 13 payments so there’s one extra payment that is applied to your principal. With that, your interest will also decrease as the principal is reduced. Also, the more principal you pay, the faster you’ll be able to build equity in your home.
Make Extra Mortgage Payments
If you are not able to set up a bi-weekly payment plan, you can accomplish the same results by making one extra mortgage payment every year electively. Alternatively, you can divide your monthly payments into 12 and add the amount you get to your payments every month. Either of these two options allow you to pay your loan faster and ultimately help you save thousands in interest.
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Today's Mortgage RatesDrop Your Private Mortgage Insurance
If you have financed your house using a conventional mortgage, and you did not put down 20% of the home’s purchase price, you are probably burdened with private mortgage insurance or PMI. It may not seem like a big deal at first. After all, you got your dream home for a smaller down payment. However as years pass, you might notice the cost adding up.
The good news is you can ask your lender to cancel that insurance once your mortgage balance is less than 80% of the home’s appraisal value. This is possible also if your home’s value has gone up or if you have repaid enough of the principal. It may require another appraisal of your home to confirm its value but once that’s done, you can finally be free of PMI.
Recast Your Mortgage
Recasting is also known as re-amortization. This happens when you pay down a big portion of your home loan and “recast” your existing loan. This involves a new term length ang not a new loan, which makes it different from traditional mortgage refinancing. When you recast, your monthly principal and interest are also recalculated so you get a lower monthly payment over the term of the loan.
Streamline Refinance
If your loan is government-backed, you may want to consider streamline refinancing. This will allow you to take advantage of a lower monthly payment and a lower interest rate. There are also lenders who will be willing to lower your rate without having to reset the term.
Your Team at MidAmerica Bancorp
As you can see, there are some ways to lower the overall interest you pay for your home. The key thing to remember is that the sooner you can pay the principal, the less interest you’ll get charged. That said, refinancing is not an option for everybody, so make sure that you understand it completely before you make any changes to your loan. It’s better if you can work with a reliable home mortgage consultant who can help you find the best solutions for your specific needs. MidAmerica Bancorp, Inc. offers various home mortgage solutions in Chicago as well as throughout the states of Illinois, Indiana, Florida, Michigan or Wisconsin. Call us at (708) 237-4050 to know more about our services!
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.
Today's Mortgage Rates