Let’s face it, buying a home is likely the largest purchase you will ever make. And, though the cost of homes here in Boise / East Boise is a lot less than other cities around the country, unless you have hundreds of thousands of dollars laying around, after purchasing said house, you will be in debt. In other words, you will have a mortgage. It’s something we kind of accept as part of the “American way.” It’s like, if you get a new puppy, you expect to find a chewed up shoe, or if you hang out at a swamp, you expect to get bitten by a mosquito…anyway, we digress. The point is, a mortgage is something fairly expected if you buy a house.
So, you can pay off your mortgage over 30 years, or you can try to pay it off sooner…and possibly save yourself many thousands of dollars. Kayla Albert, blogger for Trulia.com offers these tips:
1. Refinance into a 15-year mortgage
Cutting your loan term in half is a big financial step, but the benefits are substantial. Not only will you shorten the payoff time, but you’ll also be rewarded with a lower rate and pay significantly less in interest over the life of the loan. The key here is determining whether you can shoulder a larger monthly cost that comes with a 15-year mortgage. If you’re not completely confident in your ability to commit to a higher monthly payment, challenge yourself to make payments you would be making if you had locked into a 15-year mortgage. Then, if financial circumstances change, you still have the flexibility to return to a lower monthly payment.
2. Refinance into a lower rate but keep payments the same
The benefits of refinancing your loan but sticking to the same payments are twofold: You will pay less in interest over the life of the loan and create a shorter path to mortgage freedom. Plus, it’s not as drastic as jumping from a 30-year mortgage to a 15-year mortgage. However, it’s important to do a bit of research on how to refinance. Closing costs for refinancing are generally lower than if you were to purchase a new home, but they’re still an added expense. Your new interest rate should be low enough to negate the cost of refinancing, or you should be planning on staying put long enough to reap the benefits of a smaller rate. (Use the Trulia refinance calculator to see if this is a good choice for you.)
3. Get rid of private mortgage insurance (PMI)
If you financed more than 80% of your conventional mortgage, chances are, you are paying private mortgage insurance to protect the lender in case of default. Redirecting this amount — usually 0.05%–1% of the loan amount annually — to the principal on your mortgage can have a big impact over time. You can request to get rid of PMI once you reach an 80% loan-to-value ratio, but the lender is required to remove it after you’ve reached a 78% loan-to-value ratio. You can speed up the process by increasing your equity through home upgrades, or, if the home has already increased in value for other reasons, you can opt to refinance. Some lenders may even allow you to get an appraisal to show the new value and your increased equity — without paying for a refinance.
4. Put those windfalls to work
Maybe your monthly budget doesn’t have wiggle room and paying the costs to refinance isn’t in the cards. There’s another option. Tax returns, bonus checks, and inheritance payments present the opportunity to pay off a chunk of your mortgage without feeling the pain in your monthly budget. This could mean thousands of additional dollars chipping away at this massive financial responsibility each year. Sometimes your money could be better spent elsewhere — like paying off high-interest debt — but if wiping out your mortgage early is a priority, this is a great place to start.
5. Make extra or higher principal payments
Additional small principal payments add up over time!. On a $150,000 loan for 30 years at 3.75%, with no additional payments, more than $100,000 will be paid in interest over the course of the loan. By adding just $100 per month in principal payments, the total interest paid is reduced by nearly $25,000 and the loan will be paid off more than six years sooner!” Another way to do this is by making biweekly mortgage payments. Instead of making 12 monthly payments, this equals out to 26 half-payments — or 13 full payments — per year. But beware, explains Harper, not all loan servicers make it easy to apply these extra payments to the principal. Make sure to speak to yours and ensure they aren’t simply holding on to the extra money and applying it toward the interest.
The bottom line: Choose what works for you Choose the option that fits best with your current financial situation and any possible changes you foresee. If you have a steady income that will last in the long term, will last in the long term, a shorter refinanced term might make sense. If your income is a bit less consistent, you may want the flexibility of making additional payments when you can.
If you would like to talk with a great realtor, who will walk you through the home-buying process and communicate everything you need to know, be sure to call Templeton Real Estate Group today! As your East Boise Real Estate experts, we take special care of our clients; we listen to what you want and will find you your perfect match! Call us to check out some of East Boise’s great neighborhoods: Harris Ranch, Harris Crossing. and Harris North, River Heights at Barber Valley, and other East Boise neighborhoods.
Though we specialize in East Boise, we represent clients all over the Treasure Valley, both buying and selling. Contact us today @ 208.473.2203 or email @ info@templetonrealestategroup.com
Come check out East Boise and see why it’s becoming a favorite destination in the Treasure Valley – great outdoor living, breathtaking scenery and wildlife found in the Boise Foothills, the Boise River and Greenbelt. Lucky Peak Reservoir, Barber Park and Marianne Williams Park. In addition, residents can enjoy Boise’s acclaimed Shakespeare Festival, concerts and events at the Botanical Gardens, local favorite Lucky 13 and a soon-to-come coffee shop are just a short bike ride away! Bown Crossing is also close as are great schools and a fabulous new Library!
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