18 Ways to Reduce Your Mortgage Loan Part 1
1. Skip the introductory rate (Honeymoon)
Beware of lenders bearing gifts! Introductory or honeymoon rates
have long been an important marketing tool for lenders. You are
initially offered a cheap rate on your loan to get you in the
door but once the honeymoon period is over, the lender will
switch you to a higher variable rate of interest. An example of
this is an Adjustable Rate Mortgage (ARM).
There are two problems with this scenario. First, the variable
rate is often higher than some of the lower basic loans
available so you could end up paying more. Second, you need to
clearly understand that a honeymoon rate applies only for the
first year or two of the loan and is a minor consideration
compared to the actual variable rate that will determine your
repayments over the next 20 or so years.
You may also be hit with fairly steep exit penalties if you want
to refinance in the first two or three years to a cheaper loan.
So make sure you fully understand what you are letting yourself
in before setting off on a "honeymoon" with your lender.
2. Pay it off quickly
Time is money. There are all sorts of strategies for paying less
interest on your loan, but most of them boil down to one thing:
Pay your loan off as fast as you can. For example, if take out a
loan of $300,000 at 6.5 per cent for 30 years, your repayment
will be about be about $1,896. This equates to a total repayment
of $682,632 over the term of your loan.
If you pay the loan out over 15 years rather than 30, your
monthly payment will be $2,613 a month (ouch!). But the total
amount you will repay over the term of the loan will be only
$470,397 - saving you a whopping $212,235