Top 7 Mortgage Tips and Tricks

American households spend an average of 25.8% of total average earnings on housing costs, from mortgages to property taxes. While this falls under the 28% rule, there’s no harm in saving even more for daily living expenses or paying off debts. One of the best ways to lower housing costs is to reduce your mortgage. Here are seven mortgage tips and hacks that won’t hurt your credit or put you into further debt.

1. Refinance to a lower interest rate

One popular way to reduce your mortgage payment is to refinance to a lower interest rate. With a reduced rate, you will have lower monthly payments, which come with less interest. One downside to refinancing is that you can expect to spend three to six percent of your loan principal on closing costs. Make sure refinancing will lower your interest rate enough to cover your closing costs and save you money in the long run.

2. Refinance to a shorter-term mortgage

Another way to change your mortgage is to refinance to a shorter-term loan. Most homeowners have a 30-year mortgage, but you can significantly reduce your interest rate and pay off your loan faster by refinancing to a 15-year mortgage. While you will incur closing costs for the refinancing process and have a higher monthly payment, a 15-year term will help you finish paying your mortgage sooner.

3. Pretend you have a shorter-term mortgage

Refinancing to a shorter-term loan requires you to make higher monthly payments, which can be a burden for many. Instead of spending the time and money to refinance, an alternative is to pay as if you have a shorter-term mortgage. Aim to pay an additional one-twelfth of your payment (principal and interest) each month — about $50 on a $600 payment. This is the equivalent of making an additional monthly payment each year. You’ll pay off your loan a few years early and save money in interest. Check with your loan company on any rules regarding making payments above your minimum.

4. Set up biweekly payments

An easy and automated way to pay off your loan faster is to follow a biweekly payment plan. You likely have an escrow account specifically for your mortgage payments. Every other week, put half of your monthly payment in that account. With this method, you will put 26 half payments, or 13 full payments, in your savings account. After a year of paying your regular monthly payments, you’ll have saved enough for an extra full payment. You can pay that extra amount as additional principal. As with the previous tip, check with your loan company first on any payment rules specific to your mortgage.

5. Reduce or eliminate your mortgage insurance

Some homebuyers are required by their lender to purchase private mortgage insurance (PMI). This may be your situation if you put less than 20 percent down on your home or refinanced with less than 20 percent equity. PMI typically costs between 0.5 and 1 percent of your entire loan amount — with a $200,000 loan, you could be spending $2,000 per year on this insurance. Luckily, you can reduce your PMI costs or remove them entirely if you meet certain conditions. Two ways to do this include paying down your mortgage balance to 80 percent of your home’s original appraisal value, or getting a new appraisal.

6. Reduce your homeowners insurance premium

If you have an escrow account, a portion of your homeowners insurance payment goes there with your mortgage. While homeowners insurance is essential, there are ways to reduce costs without sacrificing quality coverage. The simplest way is to request new quotes from different insurance companies and switch to the policy with the lowest price. Another option is to reevaluate your current coverage and look for ways you can save. For example, if you’ve recently installed a security system or other safety enhancements, you may be eligible for a discount. When in doubt, ask your insurance agent.

7. Invest your escrow check back into your mortgage

Payments for your homeowners insurance and property taxes come out of your escrow account. Each year, your escrow account is analyzed to evaluate any insurance or tax fluctuations that result in either a payment shortage or overage. If you paid less than anticipated, your lender will send you a refund check for the surplus amount. Instead of cashing that check, use the money to make extra payments toward the principal balance of your mortgage. This won’t change your monthly payment total, but it does decrease your loan balance. A home loan can seem overwhelming, but there are many ways you can tackle your high monthly mortgage and save money. By incorporating a few of these tips into your payment plan, you’ll feel more confident and in charge of your finances.