Mortgage Rate News

The reason that people lend other people money is because the interest charges make such loans a good investment. And the home mortgage is quite lucrative. Lenders get back a great deal more than they allow you to borrow, as you pay interest charges every month, year after year. Well, here are some tips for paying less overall on your home mortgage:

• Make a bigger down payment. Try to make the biggest down payment you can afford. The more money you pay up front, the less you borrow. And since interest is expressed as a percentage of the total you borrow, the interest will be lower.
• Try to get a lower mortgage interest rate. Look for home mortgage loan programs that offer lower rates. This means a conventional loan is likely to be best. This lower interest rate should be applicable the entire term of the loan, and not just for a short introductory period at the front. A fixed rate is also preferable to a variable rate, as over time the fixed rate usually results in less money paid to the lender. You will need a good credit score to qualify for a lower mortgage interest rate.
• Get a shorter loan term. The longer you are paying interest, the more interest you will pay. You can reduce the amount you pay on your home mortgage by getting a shorter loan term. A 15 or 20 year home mortgage may have a higher monthly payment, but it results in paying less over the long term. And, quite often, a shorter loan term comes with a lower interest rate.
• Pay biweekly on your home mortgage. Instead of a monthly payment, consider a biweekly home mortgage payment. You make payments every other week, resulting in what amounts to one extra payment per year. This can reduce the amount of time you have your mortgage, and the interest charges you pay. Just watch out for prepayment penalties.

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One of the more interesting concepts in debt management is that of “good” debt and “bad” debt. The good news is that a home mortgage is considered good debt. But if you are not careful, even good debt can go bad.

What is bad debt?

To know the good from the bad, it helps to first understand what bad debt is. Simply put, bad debt is debt that returns nothing to you. Credit card debt, in which you constantly carry balances, is bad debt. Payday loans and their ilk, along with most other consumer debt is bad debt. A car loan can be bad debt if the car is more than you need, or if you can’t afford it. Even when you can afford it, it is hard to put a car loan in the good debt category, since it depreciates in value every year, and you only a recover a small portion of what you paid in.

What is good debt?

Good debt is debt that can be leveraged into something more valuable. Carefully considered student loans, which can result in higher paying jobs, can be good debt. A home mortgage allows you to acquire an asset that you can sell later, and so is good debt. Business loans can also be considered good debt.

When good debt goes bad

Unfortunately, many people rationalize getting into more debt than they can handle by saying it is “good.” The truth is that debt is debt, and even good debt can turn into a nightmare. Many people get a bigger home mortgage than they can afford, turning that good debt into debt that should not be. Then they lose everything, including the money they have already paid, and they have no asset to show for it.

Before you get into debt for any reason, carefully consider your options. You should always try to limit the amount of debt you have, even if it is “good,” and especially if it is “bad.” And always try to pay off all of your debt as soon as possible.

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One way you can pay off your mortgage faster, and save money in mortgage interest charges, is to arrange biweekly payments. These are payments in which you make half your mortgage payment every two weeks. Here’s how it works:

Because the calendar does not have a set number of days for each month (ranging from 28 to 31 days each), there aren’t a set number of weeks, either. There are 52 weeks in year. This means that if you are on a biweekly schedule, making a payment every other week, you will make 26 payments in a year. Divide that by 2, and you get how many “monthly” payments you will be making: 13. But there are only 12 months in a year. So by making your mortgage payments on a biweekly schedule, you are actually making an extra payment each year.

The main benefit of such a practice is that you can knock off between 5 and 8 years of your mortgage term (depending on when you start) simply by switching to biweekly payments. And you will save thousands – probably even tens of thousands – of dollars in mortgage interest charges. You will also build equity (or “ownership”) in your home faster, since you will be putting more toward the principal each year.

Some things to watch out for with mortgage biweekly payments

As always, there are some caveats to paying off your mortgage faster with biweekly payments. First of all, you should find out if you will end up with a pre-payment penalty. Most of the time, your savings will still be greater than the penalty, but it is a good idea to make sure.

Another thing to be aware of is the fact that some mortgage lenders charge a fee to set up a mortgage on biweekly payments. Again, the savings are usually worth the fee, but you should carefully weigh your options to makes sure. Related to that enrollment fee are transaction fees. Some mortgage lenders charge a transaction fee every time money changes hands. So you might find yourself slapped with fee each time you make a payment

Thoroughly check your mortgage lender’s policies on mortgage loans with biweekly payments. Then see if such an arrangement will work for you.

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