A mortgage — from a French word literally meaning “death contract”, because it was assumed you would die before fully paying it off (no joke!) — is by far the largest debt obligation that most of us will ever take on in our lifetimes. Needless to say, anything that you can do to shave even a small amount off of your mortgage payments will save you a huge amount of money in the long run. So here’s a few ways to do just that:
Assume an Existing Mortgage
If you can find a house that has an existing mortgage, and the seller is looking to get out, you can often take on the obligation to pay off the rest of the mortgage. This may be able to get you into a home with a much lower down payment. And if the mortgage was set up in the past few years, it’s likely to have an interest rate comparable to what you can get today.
Seek out Seller Financing
Seller financing means that you don’t get the bank involved at all — you simply agree to pay the seller directly over a period, rather than borrow money from the bank and pay the seller all at once. These deals are rare, but if you can find someone willing to engage you in one, you can often beat out the market interest rate along the way. The advantage to the seller is a steady long-term income stream that skips out on capital gains tax altogether.
Don’t be afraid to force banks to compete for your business. Do your research. Get real terms from every major bank and every credit union in your area, and then turn to one of the local banks and show them the rate offered by the best deal in town. Big banks are likely to be inflexible (they have plenty of other customers), but a local bank will often clear a special deal for you, undercutting their competition in order to get your business. You win!
Pay Over — By a Lot
No matter what your interest rate or who you get your mortgage from, the best advice anyone can ever give is to pay 10% more than your monthly mortgage bill, and to pay every four weeks like clockwork regardless of the length of the month. By doing so, you squeeze 13 payments into a year rather than just 12, and if you’re paying 10% extra with each payment, it means that you’re actually paying just under 120% of your yearly obligation each year — or, more directly, paying off 5 years worth of mortgage in only 4 years (or 30 years of mortgage in only 24 years.)
Why would you do that? Because the faster you pay off your debt, the less time you have to accumulate (and pay off) interest, and the closer to the actual value of the home your payments become.
About the Author:
This is a guest blog post from Richard Simon, co-founder of Realty AZ Central. Realty AZ Central is a Phoenix Arizona based real estate marketplace offering a host of home buyer and seller resources including home selling tips, mortgage lender referrals, and a local real estate agent network.