Coldwell Banker King
Coldwell Banker King
Sheridan Cupp, Coldwell Banker KingPhone: (828) 275-0742
Email: [email protected]

3 Ways to Save on a Home Loan

by Sheridan Cupp 02/23/2020

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

Sheridan Cupp

Meet Sheridan Cupp - Realtor at Coldwell Banker King

Sheridan Cupp is a licensed Realtor with Coldwell Banker King. In addition to her capability in residential real estate home sales, Sheridan has managed luxury vacation properties and can help those interested in considering vacation rental property ownership.

Sheridan graduated with a Bachelors of Fine Arts in photography from the Savannah College of Art and Design (SCAD) where she also studied interior design, architecture and art history and photography. She has an eye for those important details that can enhance the prospects for showing and selling a home. Buyers benefit from her talent for seeing the potential a home can have with just a few affordable changes or improvements.

After college, Sheridan built a successful career as professional photographer. She has lived and worked in Asheville for the past fourteen years and knows the neighborhoods well. She is the proud mother of two teenagers and rescue pup Jake.

Her personal attention and dedication ensures each client will receive the focused professional attention they seek and deserve. She invites you to contact her for a get-acquainted cup of coffee.