 As with most homeowners, your mortgage payment is probably your largest monthly expense. Wouldn’t it be nice to trim this huge cost and perhaps shorten the life of your loan? We have listed seven tips below to help save you money on your mortgage. The tips below are based on this hypothetical mortgage example (savings will vary based on your actual loan facts and timing of the change):
1. Add One Extra Payment Each Year Perhaps the easiest way to save money on your mortgage is to make an extra mortgage payment each year. These extra payments are automatically applied on your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term. Savings: $47,000. By making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan. 2. Set up Bi-Weekly Payments Another trick to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you. Beware that they could charge you for this service. Savings: $47,000. Same as extra payment. 3. Get Rid of Your PMI If your down payment was less than 20 percent, you were probably required to pay private mortgage insurance (PMI). However, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home’s appraised value. This can happen if your home’s value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment. Savings: $130 per month. If you only put down 5 percent and had a PMI rate of .78 percent, you could save $130 per month. 4. Reduce Your Assessment Property taxes can cost thousands of dollars a year. If you think your home’s value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes. Savings: Varies. Depends on your local tax rate and home adjustment, but could be hundreds of dollars a year. 5. Reset Your Mortgage This is not commonly known, but some lenders will reset (recast) your monthly payment if you make a large payment towards the principal of your mortgage. Your monthly payment stays the same, but the term of your loan shortens. When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan. Savings: $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month. 6. Modify Your Loan If you are late on your payments and are going through a financial hardship, you may be eligible to modify terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of programs, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site. Savings: Varies. It can reduce your interest rate to as low as 2 percent, extend your term to 40 years, or reduce your principal. 7. Refinance Lastly, the most common way to save money on your mortgage is by refinancing to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven’t already, you should consider it. Savings: $126 per month. By lowering your interest rate to 5 percent, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months. From: US News Related Blogs:
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 As entrepreneurs find success with their primary business ventures, many search for the proper investments for their profits. Of course, we can and should all start traditional tax preferred vehicles like an IRA and 401k. These are the bedrock of good 'benefit' planning for ourselves and our employees. I'm also convinced more entrepreneurs should consider rental real estate as an important part of their portfolio. I realize many business owners shrug off this concept after the recent downturn in real estate values, but let me list a few reasons that may change your mind: 1. Gain more leverage. Real estate is one of the few investment vehicles where using the bank's money couldn't be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible. 2. Grow, tax-free. Buying rental property based on speculation of its value is a dangerous tactic since cash flow is the key. However, appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further. 3. Tax free cash flow. It's no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free. That's right! The far majority of the time an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future. 4. The tax write-offs against your other income. Depending on your classification as an Active Investor or Real Estate Professional and your income level, there is a good chance your rental property will not only give you tax-free cash flow, but an overage of tax deductions you can use against your other income. With that said, this is something you want to discuss with your tax professional before investing so your expectations are realistic. 5. Increased tax deduction strategies. Rental property affords investors with another incredible opportunity to convert personal expenses to potentially valid business deductions. Don't forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property. 6. Rental real estate is a forced retirement plan. Americans are terrible savers. We lack the self-discipline to put a monthly deposit into our IRA, SEP or 401k as small-business owners. However, buying a rental property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don't give up on it and build future cash flow and wealth. I meet with a lot of successful entrepreneurs, and almost every one of them has taken profits from their businesses over the years to invest in rental property. Based on this fact and the list above, I have consistently urged my clients to buy one rental property a year and already have clients with rental properties earning them money they never imagined they'd have. The far majority of us will never get rich overnight. It takes long-term investing and a diverse portfolio to build true wealth. Don't forget real estate as an important part of the equation. |