How To Save Money On Your Mortgage: 7 Simple Tips

Mortgage payments can consume up to 50% of your lifetime earnings. This article will show you how to save money on your mortgage using 7 simple methods.

Let’s kick things off with tip number #1.

If you want to know the best ways to save money from your paycheck, these articles can help get you started.

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How To Save Money On Your Mortgage

1.An Offset Mortgage

You can reduce mortgage payments by applying or switching to an Offset Mortgage. This allows you to link your current savings to offset against the amount you owe on your mortgage- reducing the interest you pay.

An Offset mortgage is good for people who have extra savings but may need them in the future. An offset mortgage allows you to use your savings to reduce your interest payments but also gives you access to your savings if you need them.

How does it work?

Your savings are placed in an interest-free savings account and their value is ‘offset’ against your mortgage.

2. Refinance to a lower rate

When you initially apply for a mortgage, you will likely be offered a fixed rate of interest for 2-3 years. After that ends, your mortgage will revert to your lender’s Standard Variable Rate, which is normally higher.

Here is an example, the fixed rate is 2.69% for 2 years and then it reverts to 4.19% after.

HSBC Fixed and Variable rates

You can save money on mortgage payments if you re-mortgage your loan and switch it back to a lower fixed rate again. This is entirely possible as my mother did this for our family house and saved herself a huge amount of interest.

3.Refinance to a Shorter Term

Once you have passed the 2-3-year fixed-rate term, it’s also worth refinancing to a shorter mortgage if you can afford higher monthly repayments.

Shortening your mortgage term will help you in two ways.

You will get better interest rates for shorter-term loans
Lower overall interest payments

Here is an illustration on the interest you can save if you shorten your mortgage term:

Normal VS Shorter Mortgage

Try using this mortgage calculator,to see how much you can save in interest payment for different loan terms

4.Private Mortgage Insurance

If you paid a deposit of less than 20% at the beginning of your mortgage, you likely had to take out Private Mortgage Insurance. However, once the mortgage falls below 80 percent of the home’s appraised value – you can ask your bank to cancel the insurance.

This can happen if your home’s value has gone up or you have repaid some of the principal. You may be required to pay for a new appraisal but it could save you hundreds every month.

Your bank may not necessarily tell you that you no longer need PMI, so it’s up to you to be proactive and ask them to cancel it to save you extra money.

5.Recast your mortgage

Recasting your loan is also known as re-amortization. You pay a lump sum towards the principal of your loan and the bank recalculates your principal and monthly interest due. Your monthly payment is reset or re-amortized based on a new, lower amount.

So, you end up with a lower monthly payment over the existing term of the loan, effectively saving on your mortgage.

6. Make overpayments

Do you want to save money on mortgage interest? Overpaying your mortgage when you have a bit of extra cash every month will help you reduce your overall mortgage payments. The interest rate that you are charged is based on the total amount of the loan. So, the sooner the loan balance reduces, the less interest you have to pay.

Most mortgages allow overpayments of 10%, but make sure you check with them first. If you don’t, you may be stung with a penalty charge.

7. Make Bi-weekly instead of monthly payments

Speaking of overpayments, another tip to reduce your mortgage payments is the Bi-Weekly payment method.

Instead of paying your mortgage repayment every month, you can divide the payment into two and pay it every two weeks. However, because there are 52 weeks in a year, a Bi-Weekly payment schedule will result in 13 full-sized paymentsa year instead of the normal 12. (52 weeks/4 weeks= 13)

So, you save extra money, which goes towards paying off your mortgage.