You can reduce your monthly mortgage payment in several ways that remain mostly unknown to homeowners. Today, we change that by sharing the insider scoop and best-kept secrets the lending establishments and tax authorities don’t want you to know. In just five minutes, you'll be armed with the needed know-how to start saving money every month! 1. Remove Mortgage Insurance. Mortgage insurance is an added cost on “risky” loans where the buyer puts down less than 20%. The thought being, the more cash a buyer has invested in their home, the less likely they are to fall behind in their payments and encounter foreclosure. When a buyer doesn’t have enough skin in the game, the lender requires this extra layer of insurance protection. This insurance premium is paid on a monthly basis - wrapped in a homeowner’s monthly mortgage payment. The good news is many conventional lenders will waive this insurance premium when a borrower gets to the point of 20% equity in the home. And the best news is you may be able to get there without paying down the loan balance. With recent historic rises in home prices, Central Virginia’s housing market has seen a valuation boom. If a homeowner has the equivalent of 20-25% equity should the home be sold today, you may qualify to have your mortgage insurance removed. Each loan and lender’s policies are different. Contact us to help you determine if you are likely to meet the 20% equity threshold. If you get a green light, it could be worth checking with your lender to take steps to qualify. 2. Recast Your Loan. Most homeowners don’t know this recast option exists or mistakenly assume it’s the same as refinancing. A mortgage recast is when a homeowner pays a large, lump sum payment towards their remaining loan balance. This payment not only brings the debt balance down, but it may also qualify you for a new amortization schedule – commonly referred to as a payment schedule. This trick is great for someone buying their next home without selling their first one. Buyers – who stand to get a big equity windfall after their home sells – may already plan to roll the equity into the next home. If this sounds like you, stay with me... Unlike a refinance, a mortgage recast does not change the interest rate. Also, unlike a refinance, you will not be charged thousands in closing costs. Instead, you’ll pick up an administrative fee of typically just a few hundred dollars. A quick example of how it works: A conventional borrower locked in a loan last year at a 6% interest rate. They put down 5% on their $400,000 home since they hadn’t sold their existing home yet. After they closed on the sale of their old home, they cashed out $100,000 of equity which they put towards their new home’s loan balance. By leveraging a recast - costing only a few hundred dollars - they could save about $500 a month or over $6,000 a year. Not bad! Not every lender allows recasting and not every loan qualifies. But if yours does, we know you’ll thank us for this money-saving trick! 3. Review Your Homeowner's Insurance. I learned this one the hard way. My Pollyanna view of the world wrongly made me assume that while my homeowner’s insurance may go up nominally, I would be rewarded as a long-standing customer with a good deal each year. WRONG! Having discovered the hundreds of dollars I was overpaying for my homeowner's insurance (and my car insurance…another story), I shop every year for insurance making sure my apples-to-apples comparison affords me the best deal and the lowest charge tacked on to my monthly mortgage. Every dollar saved on property insurance is one dollar saved on monthly mortgage payments. 4. Challenge Your Tax Assessor’s Records. Similar to homeowner’s insurance, property taxes are typically held in escrow and paid by the lender. Essentially, escrow items (property taxes and insurance) are collected each month as part of your mortgage payment so that when these bills become due, the money is drawn by the lender and paid to the provider. You may be shocked to hear it, but sometimes tax records are just flat-out wrong. Last year, we sold a house that measured over 300 square feet smaller than what the tax assessor’s office had on record. In our experience, these discrepancies are not uncommon in older homes especially. In this scenario, having the county adjust the size would save $300 a year or about $25 a month for the homeowner. Separately, if you think the assessor’s valuation of your home is just too high, each locality has a way to appeal it. We have several clients who have successfully gone through the process saving thousands cumulatively. If your taxes seem too high, drop us a note so we can do some looking for you! Congratulations! With these four tricks you are a graduate of the Money Saving Club - no secret handshake required. Never want to miss a post? For more useful real estate tips & tricks, subscribe to our mailing list or contact us with any real estate questions.
Authored by: Kat Medaries, REALTOR® MT Realty Advisors of Long & Foster Real Estate Village of Midlothian Sales, 1100 Jefferson Green Circle, Midlothian, VA 23113 Licensed to sell in the Commonwealth of VA | Equal Housing Opportunity For informational purposes only. Not intended as legal, financial or credit counseling advice. Seek the assistance of a professional.
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