Five money saving tips for new home buyers
Are you a new homeowner looking for ways to save some money? Here are some great places to start.
By Terence Loose | Yahoo! Homes – Thu, Aug 16, 2012 6:59 PM EDT
When buying a new home, you probably have a "To Do" checklist longer than a loan application. But there are a few things you should put above "Do Happy Dance in Front of Co-workers who Rent."
Like "Find Ways to Save Money."The good news is there are several ways you might be able to save a little green. From major moves like refinancing your mortgage, to more humble acts like bundling your Internet and cable with one company, the savings potential for new or prospective homeowners is big.
So, before putting on your dancing shoes, check out these five tips that could help you save.
Tip #1 - If You Can, Get a Shorter-Term Mortgage
If you’re still shopping for mortgage loans, or if you’re already thinking of refinancing (replacing your existing loan with a newer one), choosing a 15-year loan term - rather than a 30-year term - could be a smart financial move.This means you could pay off your house in 15 years instead of 30 years. And that has some advantages, as well as some challenges.
On the plus side, a 15-year loan typically means a lower interest rate, says Fred Arnold, a member of the National Association of Mortgage Professionals (NAMB) board of directors. He says most lenders offer a rate that’s at least a half percent lower than the rate for a 30-year loan. This means you could pay much less in interest over the life of the loan.
How much? Here's one example:
If you borrowed $250,000 for 30 years at 4.5 percent, you would pay $206,016.78 in interest over the life of the loan, in monthly payments of $1,266.71. However, if you borrowed $250,000 at 4.0 percent for just 15 years, your monthly payments would rise to $1,849.22, but the total amount of interest would only be $82,859.57. That’s a savings of more than $120,000...a good chunk of change, wouldn’t you say?
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As for challenges, because you are paying off the loan in half the time, your monthly payment will be higher, as the example above shows. So be sure you can afford it. And if you’re comfortable with it, Arnold says you could be on a strong financial path.
"Your payments might be higher, but it requires you to be disciplined and in many cases that’s how people become very wealthy," says Arnold, who adds that if you can’t afford to go all the way down to a 15-year loan, there are also 20- and 25-year options from some lenders.
Tip #2 - Get Rid of Your Private Mortgage Insurance (PMI)
If your down payment was less than 20 percent of the value of your home, it’s very likely your lender required you to buy private mortgage insurance (PMI), a policy that protects any losses the lender might take if you don’t make your loan payments.And unfortunately, the PMI isn’t cheap. According to a mortgage consumer guide published by the U.S. Federal Reserve System, which oversees national monetary policy and banks, PMI could cost anywhere from $50 to $100 per month.
Wouldn’t it be nice to get rid of that? Good news: you can. The first way, of course, is to put 20 percent down when you buy a house. But if you couldn’t or can’t, don’t worry, you still have a shot at losing the insurance.
According to the Federal Reserve, when you make enough payments to gain 20 percent equity in your home (based on the original purchase price), you can send a written request to your lender to cancel the PMI.
The Federal Reserve adds that federal law requires your PMI payments to automatically stop once you reach 22 percent equity in your home - again based on your original purchase price and with a clean payment record.
Finally, you should know that PMI is different than LPMI, which stands for lender's private mortgage insurance. Some lenders buy LPMI and charge you a higher interest rate to cover the expense.
According to the Federal Reserve, this type of insurance does not automatically cancel; instead, you must refinance your home to possibly get rid of it.
To read the entire article from Terence Loose | Yahoo! Homes:
http://homes.yahoo.com/news/tips-for-new-homeowners-to-save.html
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For remember, fear doesn't exist anywhere except in the mind. -Dale Carnegie
The good thing about PMI is that it makes it possible for you to purchase a house with as little as a 3-5% down payment, instead of waiting for years to come up with large amounts of money. The catch is, once you have the house, it no longer benefits you. The insurance is basically an additional cost to the borrower for the increased risk held by the lender. It is important to track down your payments and request cancellation of the PMI premiums when the loan-to-value ratio hits 80%.
ReplyDeleteRegards,
Chris from homeloans-sa.co.za