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Did you know if you borrow 100,000 for a mortgage loan, you may pay back as much as 300,000? Yes, its true, and you may pay more than that depending on the interest rate and the number of years it takes you to repay the loan. The amount is even higher if the terms of your loan require mortgage insurance.

There is a solution if you are able to pay something extra each month even if it is a small amount. Lets say you borrowed 100,000 and for your first payment, you paid the regular monthly payment of principal and interest in the amount of 825.00. As a reasonable example early in the term of the loan, 800 may be applied to interest and 25.00 is applied as principal. Your outstanding balance is now reduced to 99,975.00 and the interest for the next payment is calculated on that amount. If you had paid an extra 50.00 with the payment, the 50.00 would have paid two more scheduled principal payments and you would have saved two interest payments. Using the above figures as an example you would have saved approximately 1,600.00. Thats right – 1,600 in interest that you would never have to pay. In addition the interest amount due next month would be calculated on a lower balance.

The terms of the mortgage require a monthly payment of the full amount due for the monthly principal and interest payment. Most mortgage documents allow additional principal payments (also known as curtailments) without penalty; however, you should verify this with the lender or review the loan documents. If there are no penalties, you can save several thousand pounds over the term of the loan plus you dont have to spend thirty years paying off your loan. As we saw with the example above, a payment of an extra 50.00 resulted in savings in the interest. (The actual amount will vary depending on the loan amount and interest rate.)

The earlier you start paying additional sums during the life of the loan, the better. In the early years, the largest portion of your payment is applied as interest with a small amount going to the principal balance. Those small amounts will be easier to pay as additional principal payments and you will see substantial savings in the interest payments that you will never have to pay. As the balance is reduced the scheduled interest payments will be lower as the interest payment is calculated on the outstanding principal balance.

The principal balance will slowly start decreasing and before you know it, you will see a substantial reduction. It would be a good idea to ask your Lender to send you an amortization schedule so you can track your savings. This schedule shows the breakdown of the amount due for principal and the amount due for interest each month.

By reducing your principal balance faster than scheduled you will be able to request cancellation of your mortgage insurance, (MI or PMI) if your loan has insurance. Lenders require this insurance on loans with a loan to value ratio (LTV) of 80% or more. As your principal balance declines, the LTV will decline quickly as well. The Lender should be contacted for more information on canceling mortgage insurance as early cancellation could save you a substantial sum. This is in addition to the interest savings.

So remember, if you want to save money on your mortgage loan, check your loan documents for any restrictions, request an amortization schedule, and ask about the requirements for cancellation of mortgage insurance.

Enjoy Your Savings

When borrowing money for a mortgage, homebuyers are primarily concerned with simply qualifying. Still, paying attention to the length of the loan is a borrowing tip that can save you a ton of money.

Home Loans

In the mortgage industry, the length of your loan used to be the only major issue you had to deal with. How times have changed! In the current market, the variety of loans that exist are simply stunning. Of course, the massive increase in loan options has inevitably led to massive confusion.

Borrowing Tip

Regardless of the type of loan you go with, you should always try to keep your loan term as short as possible. The shorter the loan period, the less you will pay in interest. Here an example using 15 and 30 year loans.

Assume our first homebuyer gets a 100,000 loan at 8 percent interest. He length of the loan is 30 years with a monthly payment of 733.76. For this mortgage, our homebuyer is going to pay 164,155.25 in interest over the life of the loan.

Now, take the same scenario, but reduce the term of the loan to 15 years. Our homebuyer is going to see the monthly payment bumped to 955.65 per month. Over the length of the loan, our homebuyer is going to pay 90,000 less in interest payments over the life of the loan. On top of this, the house will be paid off in half the time.

When borrowing money for a home purchase, you have to carefully budget your finances. If you can afford increased monthly payments, however, a shorter loan length is going to save you a lot of money over time.

Home Equity Loan Comparison – Access Your Home’s Equity Through A Second Mortgage Or Equity Loan

You can access your home equity without the cost of refinancing with two financing options. A second mortgage will give you a lump sum check with a fixed or adjustable rate. A home equity line lets you tap into your equity when you want to. Both options allow you to write off interest on your taxes and avoid high financing costs.

Benefits Of A Second Mortgage

A second mortgage allows you to borrow up to 90% of your homes value. The lender, which doesnt have to be your primary mortgage lender, writes you one check. You can choose to pay off credit cards or make a major purchase.

Fees are none to minimal with a second mortgage. Rates are usually fixed and last 15 or more years. A 15 year loan lets you pay off the debt quicker, saving you cash on extended interest payments.

Benefits Of A Home Equity Line

A home equity line is like a secured credit card, only you are borrowing against your homes equity. You can choose to borrow a lump sum or only as needed. Most lenders issue checks and a credit card.

Rates are adjustable and are based on when you borrow the money. You can choose to never use the equity, but just know it is there in case of an emergency.

One option for new homebuyers is to put down a large down payment, securing low rates, and then apply for a home equity line. Its like a safety net, ensuring that you can still access your cash if needed.

Picking The Right Financing

Each type of home equity loan has its own advantages. A second mortgage offers secure fixed rates with small payments over a longer period. It makes sense for large projects, such as remodeling or paying off credit cards. A home equity line offers flexibility, better suited for smaller purchases.

With both types of programs, you still want to investigate lenders before applying. Be sure to look at financing companies other than your current mortgage lender. You want to find the lowest rates with the best terms by asking for quotes on both rates and fees. By investing a little bit of time, you will save yourself hundreds.