Long & Foster Real Estate, Inc.
Eileen Summers, Long & Foster Real Estate, Inc.Phone: (703) 244-3190
Email: [email protected]

3 Ways to Save on a Home Loan

by Eileen Summers 05/17/2020

Image by Andreas Breitling from Pixabay

The vast majority of homebuyers need a mortgage in order to purchase a house, and mortgages come with significant costs because they’re such sizeable loans. While there’s no way to avoid all of the costs associated with a mortgage, there are ways to save on your home mortgage. Here are three things you can do to reduce what you pay over the course of the loan.

1. Make a Sizeable Downpayment to Avoid PMI

Private mortgage insurance (PMI) is an insurance policy that generally protects lenders in the event of a default. If there’s PMI on your mortgage and you fail to pay the loan back, the insurance will reimburse the bank for their outstanding liability. 

When this insurance is required, the homeowner pays the insurance’s premiums even though the insurance protects the bank (and not the homeowner). This is because the insurance protection is for a risk that’s directly related to the homeowner. 

Whatever premiums you pay for PMI is money that you’ll never see again. The premiums aren’t applied to your mortgage balance (even though they’re sent in with your mortgage payment), and you personally will never collect on the protection.

Thus, you should avoid PMI if at all possible. The best way to avoid the insurance and corresponding premiums is to make a sizeable downpayment at closing. In most cases, banks require homebuyers who put less than 20 percent down to purchase PMI. If you put at least 20 percent down, you probably won’t need to pay for the insurance.

2. Purchase Points at Closing

Points are an option that you can purchase at closing. In exchange for buying a point, a bank will deduct the interest rate on your mortgage slightly. Usually, one point costs $1,000 for every $100,000 borrowed and lowers the interest rate by 1 percent. 

Purchasing points at closing will cost you more up front, but they’ll drastically reduce how much interest you pay over the course of your mortgage. During a 15- or 30-year span, even a small reduction in interest yields a sizeable savings.

3. Pay Off Your Mortgage Early

Of course, paying off your mortgage early is a guaranteed way to save. You’ll no longer pay interest once your mortgage is paid off, and you’ll also have a big improvement in your month-to-month cash flow.

About the Author
Author

Eileen Summers

• 23 years of highly successful Real Estate Experience in Northern Virginia • Expertise in the Northern Virginia marketplace • Excellent technology skills • Enthusiastic and Professional • Top Quality Service A 30 year resident of No. Virginia and a Graduate of the REALTORS Institute, Eileen is a Lifetime Member of the L&F Founder's Club as well as a Lifetime Member of the President's and Chairman's Club, and on the L&F Gold Team. She is an NVAR Life Top Producer and a Life member of the NVAR Multi-Million Dollar Sales Club. Her excellent knowledge of the marketplace combined with experience, enthusiasm, technical knowledge, and professionalism provide clients and customers with top quality service. E-mail or phone Eileen for more information on her listings and/or for a free computerized Market Analysis of your home (Northern Virginia area homes). • 20 Years Real Estate experience in Northern Virginia • Expertise in the Northern Virginia Marketplace • Excellent all-round Technology Skills Specialities: • New Construction • Resale Residential • Specializes in Relocations