Navigating Choppy Mortgage Waters

Hey there Money Saver! Welcome back to another week of How to Save A Buck, where we explore ways of saving money in personal finance, credit cards, and investing! Check out my archive here!

It is the single biggest expense of your life - a mortgage.

You are asking for a loan of hundreds of thousands of dollars to buy shelter.

And in the wild world of mortgages, the tides of interest rates can sometimes feel like a rollercoaster ride. With rates soaring to heights unseen in years, navigating the mortgage market demands a savvy approach.

How can you save money when it feels like it’s only getting taken away all the time? There are ways to ride this wave without getting swept away by high costs.

Want some smart strategies for saving money in today's high-interest mortgage landscape? Read on…

Ride the Initial Wave with ARMs?

We leave this section more as a question to the reader: do you plan to stay in your home for a short time, less than 3-5 years? If so, an Adjustable-Rate Mortgages (ARMs) is one way to save some cash.

These mortgages offer a teaser rate - an abnormally low rate to “tease” you into the mortgage. After this the mortgage will re-adjust to a previaling fixed rate.

Using this route, you could catch a break on your monthly payments early on, saving some serious dough. But as warned, ARMs are best suited for those planning short-term stays in their homes. You don't want to get caught in a rip current of rising rates down the line!

Play the Points Game

Ever heard of mortgage points? Think of them as your secret weapon for negotiating a better interest rate. By paying a percentage of your loan amount upfront, you can snag a lower rate and sail smoother seas of savings in the long run. Bankrate has a nice graph of how this works on a $320,000, 30-year fixed mortage.

Caveat here: in order to really capture that total savings, you’d want to make sure to live in the home for 30 years - and never refinance.

Seize the Buyer's Market Advantage

If you're lucky enough to be shopping in a buyer's market, don't hesitate to flex your negotiation muscles. You might score a deal where the seller or builder foots the bill to temporarily buy down your interest rate.

It's like getting a discount code for your mortgage, and who doesn't love a good bargain?

Go Short and Sweet

A 30-year mortgage might seem like a safe choice, but shorter loan terms can offer lower interest rates and faster debt-free shores. Of course, this usually means a higher monthly payment.

But with rates at historic highs, opting for a 15 or 20-year term could mean smoother sailing and less interest paid over time. A recent study shows that taking a shorter term mortgage vs a longer one, and investing the mortgage amount in years 16-30 in stocks, results in more money in your pocket, all things being equal.

Boost Your Credit, Lower Your Costs

Ah, the mighty credit score — your ticket to the best seats in the mortgage market. A higher score can net you a better rate, even in stormy rate environments.

Check out our previous post on FICO scores and see how this number can set you up. Banks will compete simply to lend to a borrower with a high FICO score.

Shop 'Til You Drop

Just like credit cards, don't settle for the first offer that washes ashore.

Take time to shop around and compare quotes from multiple lenders. You might be surprised by the plethera of rates and terms waiting to be discovered.

It pays to be picky when it comes to the biggest expense of your life!

Make Waves with Extra Payments

Who wants to apy a bit more on their mortgage? While it doesn’t sound fun, the result can help.

Making extra payments toward your principal balance, whether it's bi-weekly or an occasional lump-sum, can help chip away at the mountain of home debt.

Need a tool? Check out this calculator to determine the result of making an extra payment or additional monthly payments.

Always be sure to check with your lender about any terms or conditions on making extra payments.

With interest rates on mortgages north of 7%, it pays to be proactive and strategic.

Use the tips above to try and save a few hundred, if not thousands over the life of your mortgage.

A home mortgage doesn’t have to feel like a ball-and-chain. A little homework and financial flexibility up front can set you up to be the master of your own ship.

Save On,

Chris