By Don Milne
Financial Literacy Manager, Zions Bank
Reduce your monthly mortgage payment
It’s National Home Ownership Month, a nice time to think about your home loan.
Until you own your home free and clear, your mortgage payment is likely your biggest monthly expense. Apart from the cost of the house itself, you are likely to pay $100,000 or more in interest payments while you repay the mortgage. That’s serious money, so you should do all you can to lower this cost. Here are three suggestions that can lower the cost of financing your home. Interest rates are starting to move up, so now is the time to act.
Refinancing To a Lower Rate
Bankrate.com reports 30-year mortgages in the 4 percent range. You can expect to pay 2-3 percent in closing costs to refinance your loan, so if your current loan is 3 percent higher at 7 percent , you could recoup your closing costs in less than a year. If your current loan is 1 percent higher at 5 percent, you could recoup your closing costs in about three years. After that, you keep all the savings for the remainder of the mortgage. Unless you are planning to move soon, a refinance can save you thousands of dollars.
On a new loan, your monthly payment with a 15-year mortgage will be about 45 percent more, but compared to a 30-year mortgage you could cut your interest costs by two-thirds. Plus, think of what you could do if you no longer had a house payment after 15 years. This may be an especially smart move if you refinance from a higher rate 30-year loan to a 15-year loan. As an example, the payment on a $100,000 30-year loan at 6 percent is about $600. If you could refinance this at 3 percent for 15 years, the payment would be about $690. In this example, pay about $3 extra a day and cut the time to own your home in half.
Adjustable Rate Mortgage
Homeowners may be tempted by low introductory rates offered by adjustable rate mortgages (ARM). However, you are taking on the risk that you will be able to pay higher rates in the future С if you can’t, you risk losing your home. During the last economic cycle when interest rates were rising, many people who had ARMs found themselves in trouble. Instead of risking losing your home, lock into a fixed rate loan where your payment will stay the same until you pay it off.
What is best in your situation will vary from your neighbors. For extra help running the numbers, use a free mortgage calculator and home finance loan decision tool at zionsbank.com/homefinancing.
We want your comments online at daviscliper.com! What would you do if you no longer had a house payment?