The key to being a financially smart homeowner is to pay as little for your home as you need to. This not only means finding a good deal on a home you want to purchase, but trying to find ways to pay less in interest over time. Here are some simple ways that you can work to pay less interest on your home…
Refinance for a shorter mortgage
If you are in a 30-year mortgage, then you will be paying thousands upon thousands of dollars more for your home, over time, thanks to compounding interest. Since most mortgages are front loaded, as well, that means a vast majority of your early payments are only paying down a little bit of the principal. If you are eligible, then refinancing your home into a 15-year fixed mortgage loan will get you out of home-debt quicker, and allow you to pay substantially less in interest.
Pay a higher down payment
This is pretty much homeownership 101, but it’s something that too many people neglect when buying a home: always opt to pay more in a down payment. Sure, you might have to wait longer to purchase a home while you are saving up, but paying a higher percentage on your down payment means that your monthly mortgage will be much more manageable, and the interest you pay over time, likewise, will be lower. At a bare minimum, it is recommended to save for at least a 20% down payment when purchasing a home.
Overpay each month
Instead of looking at your monthly mortgage payments as a rent payment that you pay each month, think of your mandatory payments as an absolute minimum, and always strive to pay more than that each month. If you organize your finances to pay a couple hundred dollars more towards your mortgage, then you will pay off the principal faster. In addition, if money ever gets tight, you can cut back on your monthly expenses by that couple hundred dollars.