How to Lower Your Mortgage Rate

Refinancing is one way you can lower your monthly mortgage.

Refinancing is one way you can lower your monthly mortgage.

Saving money nowadays is no longer just an option; it's a must. The economic crunch that set the global market in turmoil has made its point: To survive, you must create buffers to allow more legroom for possible economic downturn in the future. For homeowners, lowering the home mortgage rate is the best way to conserve money and save a few dollars for the rainy days.

Inquire from the bank the various mortgage payment options available. For example, banks can offer breaks on interest rates for automated mortgage payments. By choosing this mode of payment, there will be potential savings due to reduced mortgage rates. One other option that banks can readily offer is refinancing. Refinancing can lock-in the interest rate to shield it from upward interest rate movements. Submit complete requirements when putting in an application for refinancing application or loan restructuring. However, refinancing can be a tedious and long process. Thus, it may defeat the purpose of gaining potential costs reduction.

Ask the bank if it can waive bank loan charges or loan transaction fees. The bank can readily waive these charges, especially if you’re a preferred customer or you have maintained good credit standing. Reduced transaction fees can save up to 70 percent of the total mortgage fee. If you acquired your home through a real-estate broker, you can still apply and get approval for reduced bank fees directly from the bank.

Take out a shorter mortgage term. Opt for a 15-year mortgage instead of a 30-year mortgage. You can still maintain the same monthly expense on a shorter amortization period prior to refinancing. The savings will come from eliminated interest costs. Even if you have a 30-year mortgage, you can usually pay your mortgage earlier without incurring any penalties. The prospect of saving more by paying faster and settling the loan earlier is much more enticing than sticking with a longer repayment period that offers very little financial flexibility.

Extend the term of your mortgage if you’re aiming for a smaller mortgage rate on a monthly basis. For example, you can reduce your payment by $126.49 by extending the term of a $100,000 mortgage at 6.25 percent interest from 15 years to 20 years. However, you may also end up paying more on interest charges over time. In this case, you could incur an extra $21,086 in interest charges. Decide whether extending the term of your mortgage is an appropriate trade-off to take.

Pay for discount points to lower mortgage interest rates. Every point is equivalent to 1 percent of the loan amount. For example, if your principal loan amount is $200,000 at 5.5 percent over a 30-year mortgage, one point, which is equivalent to $2,000, can give you a 5-percent interest-rate reduction. The impact on the monthly payment is roughly $55 less.

Settle your monthly mortgage on time by authorizing the bank to make automatic payment deductions on your bank account. This will save you time, effort and headaches from potential penalties for delayed payments.

Items you will need

  • Mortgage statements
  • Calculator

Tip

  • Research the prevailing refinance schemes and costs related to refinancing before submitting your request for refinancing. It pays to know how you can earn points. In most cases, however, you need a good credit standing to obtain a beneficial refinancing scheme with the bank.
 

About the Author

Josienita Borlongan is a full-time lead web systems engineer and a writer. She writes for Business.com, OnTarget.com and various other websites. She is a Microsoft-certified systems engineer and a Cisco-certified network associate. She graduated with a Bachelor of Science in medical technology from Saint Louis University, Philippines.

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