By Richard Goldman
Owning a home is one of the best ways to accumulate capital and protect from inflation. However, the interest involves with the mortgage over an extended period of time would be a huge expenses to the family. Learning the ways and strategies to minimize your interest payment would significantly free up your burdens especially in long run.
The followings are some tried-and-true strategies to lower the mortgage interest,
1. Be sensitive to the economic environment and ask for the bargain at the right timing actively.
Most of the banks would be much more conservative in lending under economic downturn or sustained decreased trend of interest rate. However, it would also increase the cost to the bank due to the overflow of deposit. The bank would try to maintain a good relationship with the good customers since the bank has more understandings on the background situation of these customers. Therefore, the above-mentioned situation would be a very good timing to bargain with the bank for a more competitive interest rate.
The criteria of the bank to evaluate the borrower as a good customer would include the on-time payment record, the stability of income sources, the contribution and loyalty to the bank such as other accounts and activities in the bank, etc. If you could fulfill the above criteria with good record, you are normally classified as a good customer by the bank. In other words, you have a very good chance to get a good bargain if you ask it actively in the right timing.
2. Try to make the largest down payment with the shortest amortization period as you could afford.
It would be very straightforward that the less money you borrow, the less interest you have to pay. Therefore, try to make the largest down payment over a shorter amortization period and it really save up huge interest payment in long run. For instance, interest savings would be $122,496 for every $100,000 mortgage if the amortization period is decreased from 30 years to 15 years with monthly payment $877.57 and $1,074.61 respectively (figures based on a constant interest rate of 10% for the entire amortization period). It is shown that a not very significant increase in the monthly payment could result a dramatic interest saving under a cutting of amortization period.
3. Increase your payment frequency plus additional lump sum payment
Choose a biweekly payment scheme instead of a monthly payment and you could save a significant amount of interest. Increase your payment frequency would be one of the easiest and affordable ways to lower your interest expenses. In case you have a lump sum of free money such as year-end bonus, profits from investment, etc, make additional payment and you could drastically reduce the interest.
4. Refinance with other bank with a better bargain
You may consider refinancing with another bank provided that a more competitive rate is offered. There would be many refinancing expenses that you have to take care such as new credit report, new appraisal fee, arranging for title insurance, making your points payment, etc. In general, if you could get a new mortgage interest rate with more than one percent lower than your existing mortgage and stay with the mortgage for the coming five years, it would be worthwhile to switch to the new mortgage to get the interest saving. |
