Five Ways to Save Money on Mortgage Repayments

Despite the sub prime mortgage market seemingly reaching critical mass in the USA with the fallout already affecting economies worldwide, one of the most effective methods of saving money on outgoings has to be refinancing your mortgage with a different lender at a lower interest rate or perhaps a longer term. Contrary to popular belief many individuals remortgage for this reason as opposed to simply being in financial difficulties.

If the prevailing mortgage interest rates have reduced since you set up your current mortgage deal then it obviously makes sense to take advantage of this new lower rate through refinancing. Quite simply if the interest rates have dropped then so will your monthly payments. Although you must bear in mind that there will be paperwork and fees involved with re-mortgaging so it is not something you want to do every time there is a small decrease in loan rates.

Like everything else in life its all about weighing up the pros and cons. In this case consider how much a mortgage refinance deal will cost, then balance that against how long you intend to stay in the property and how much you could save over that time. Luckily there are many websites available online that have mortgage refinance calculators with simple interfaces, all you need do is enter existing mortgage interest rate, new mortgage interest rate and the length of term. You will then be instantly shown the savings possible by switching to the new rate. it really is not that difficult!

The other way many people can reduce their monthly commitments is to simply extend the loan term. Obviously with the payments being spread over a longer term for the same principal amount borrowed this will reduce the monthly payments required to service your mortgage. However this will mean that the total interest payable over the term of the mortgage will be greater as longer term means more interest payable - even if it will reduce monthly payments somewhat. This can still be an effective way of reducing costs for those who are struggling to meet monthly payments (perhaps due to change in circumstances), but, in general is not a great idea financially.

In fact the best way to save money on a mortgage is to increase the monthly payments thereby reducing the term of the loan and the subsequent interest repaid. A small but regular overpayment will have a dramatic effect on the term of the loan and the total amount repaid. This may seem counter intuitive - paying more each month is saving me money? But special schemes have been set up to help borrowers do just that. Some schemes involve making extra payments on a fixed schedule, i.e. fortnightly payments instead of monthly, whereas with some its as simple as paying a few extra dollars each month. For example on a $100,000 mortgage spread over 25 years, paying an additional $30 each month would reduce the mortgage term by 2 years and save you approx $10,000 in interest!