When you purchased your home, you probably had a thousand things on your mind. It’s easy to get caught up in the details of finding the home you want, where you want it, for the price you want to pay. It’s possible that you overlooked other important components of the home-buying process that are now affecting your monthly mortgage payments, including your mortgage terms, insurance costs, and taxes.
You may be able to negotiate that perfect home’s price down to an unbelievable bargain, but if you don’t hone in on those other factors, you still could end up paying more than you hoped for your mortgage. The good news is it’s never too late to make changes and save money on your mortgage. Here are five strategies to consider:
1. Refinancing Your Current Home Loan
If your income has improved or you have strengthened your credit score since you got your original mortgage — or if you just didn’t secure great loan terms the first time—a mortgage refinance could be your chance for a do-over. This is especially worth considering if you obtained your mortgage prior to 2000, although even more recent mortgages could be candidates for a refi.
Securing a lower interest rate can make your monthly payments go down. (Even a small difference in rate can result in significant interest savings over the life of the loan.) Getting a shorter loan term will likely make your payments go up, but if your income can accommodate the expense, you’ll pay off the loan much sooner. A lower rate and a shorter term would deliver even better benefits.
If that sounds like a goal worth aiming for, here are some steps you could take:
• Know what you owe. Before you start looking at refinancing loans, examine the balance of your current loan, the monthly payment, and the interest rate.
• Check your credit report. Lenders may offer favorable rates or loan terms to borrowers with higher credit scores. You can get a free credit report every year from each of the three big credit bureaus, so you can review the information for accuracy and fix any errors. (But keep in mind that the annual free credit report provides an overview of your credit history, rather than your specific FICOⓇ scores.) If your report isn’t as strong as you hoped, you could always press pause and come back to your plan after you’ve had a chance to rehabilitate your credit status.
• Shop for the best lender, rates, and terms. Remember, even a half-percent difference in the interest rate can make a big difference. (And keep fees and other costs in mind as you’re doing your research may help.)
• Clearly understand the consequences. Getting a lower mortgage payment isn’t always a money-saver. For example, stretching out the loan term can lighten your monthly financial burden, but you could end up paying substantially more in interest over the life of the loan. And though borrowers often choose to roll closing costs into their loan — either because they can’t afford them or don’t want to pay them upfront — doing so means you’ll pay interest on that added amount, diminishing your overall savings.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
2. Pulling the Plug on PMI
If you couldn’t put 20% down when you purchased your home (and many first-time homebuyers can’t), you probably were required to buy private mortgage insurance.
(This is not the same thing as your homeowner’s policy, which is for your protection in case of loss or damage in your home. PMI protects the lender in case you default on your loan.)
How expensive is it? PMI typically costs .5% to 1% of your loan amount, so on a $200,000 home loan, that could be $2,000 a year, or $166 a month. If your loan closed on or before July 29, 1999, PMI is automatically canceled:
• On the date the principal balance of the mortgage loan is first scheduled to reach 78% of the original value of the property. (And just FYI, the original value is defined as the purchase price or original appraised value, whichever is less.)
• Or, halfway through the mortgage loan amortization period — that’s if the scheduled loan-to-value ratio doesn’t reach 78% before you make it halfway through the mortgage
However, you can petition your lender to cancel your PMI after 2 years when you think you have built up sufficient equity. Your loan payments must also be current.
Refinancing also can provide an opportunity to dump this cost. If your home’s value has appreciated, and the amount of your new loan is less than 80% of the home’s value as evidenced by a new appraisal, you’ll no longer be obligated to pay PMI.
3. Filing for a Homestead Exemption
Most states offer a homestead exemption to provide tax and creditor relief on a primary residence. (New Jersey, Pennsylvania, and Rhode Island are among the states that do not.) Depending on your state, a claim form may be mailed to you automatically once your house purchase goes through. But you can also get a Homeowner Exemption Claim Form from the County Assessor’s office or website. And P.S., counties often have deadlines for when the forms need to be filed.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
4. Requesting a New Tax Assessment
The county’s tax records could contain inaccurate, incomplete, or dated information that is causing the tax assessor to put a higher value on your home. You can get a copy of the record at the tax assessor’s office — and property tax records are public and available on county tax assessors’ website. Among the things you can check:
• Is the age, purchase price, square footage, and lot size listed correctly?
• Does the record have the right number of bedrooms and bathrooms?
• Has your homestead exemption been applied?
• Are there any defects that would detract from value listed? Or are there improvements listed that you haven’t made?
If you paid more for your home than what it’s now worth, and the assessment was never adjusted, you could potentially request a lower taxable value. There are a few ways to determine your home’s value:
• Looking in the tax assessor’s records for similar homes in the same neighborhood and comparing them to your own.
• Checking online real estate sites for estimates. (Just remember, you’ll need to know the actual sale price to make a solid argument.)
• Hiring an appraiser to give you a home appraisal or requesting a value estimate from the real estate agent who helped you purchase the home.
• If you are refinancing your mortgage and the lender ordered a professional appraisal, you can (and will) get a copy.
Once you have a good idea of where you stand, you can contact your county for a new assessment. This process varies by county, but if your property tax is successfully lowered, the assessment will likely be reviewed every year for changes.
💡 Quick Tip: There are two basic types of mortgage refinancing: cash-out and rate-and-term. A cash-out refinance loan means getting a larger loan than what you currently owe, while a rate-and-term refinance replaces your existing mortgage with a new one with different terms.
5. Downsizing to a Less Expensive Home
Homeowners often think of downsizing as a move they’ll make in retirement — at that stage, it’s as much about making life easier as it is about saving money.
But if you realize you simply can’t afford the house you have — or that a fourth bedroom and third bathroom aren’t as essential to life as you thought — going smaller is a great way to cut costs. Not only can you save on your house payments, but your heating, cooling and other bills will likely go down.
You also may see your costs drop if you move to a less expensive part of town or a state with low property taxes, or lower sales or gas taxes. (Check out a guide to the cost of living by state for inspiration.)
Of course, you’ll want to walk away from your current home with enough money for the move to make sense. You may want to check out what a new home will cost before you put your place on the market.
Among other things, checking figures such as how your property taxes may change can be helpful. You can also consider looking into homeowners insurance; are you moving from a no-flood zone into a flood zone? How will that change your home insurance premiums? Checking your current mortgage interest rate against the new rate you’d potentially qualify for on a new home is a pragmatic thing to do, too. Have rates gone up since your last home purchase? If so, would the higher rate be offset by a lower purchase price and loan amount?
The Takeaway
If you love your home but hate the payments, remember that there are ways to reduce what you’re paying every month. Whether you choose refinancing to get to a more manageable number or you explore downsizing, working with a mortgage loan representative can help you find the savings you need.
Most people expect owning their own home to be their biggest financial undertaking. But that doesn’t mean you should pay more than is absolutely necessary to get it.
SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.
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website on credit.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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