In a tough economy, mortgage costs can place a severe financial burden on any family. It is possible to reduce mortgage with smart financial planning.
The real estate market has caused extensive financial distress in recent years. Slow economic conditions have not helped matters, and home mortgage has become a serious financial burden for many families. However, with a conservative approach towards mortgage and smart mortgage planning, it is possible to reduce mortgage expenses.
Shop for Low Interests and Choose Best Mortgage Plan
At the time when the mortgage is under consideration, the primary step must be to seek offers from different lenders instead of focusing just on one choice. All terms and conditions of different lenders should be carefully evaluated before choosing the one with the lowest interest rate. It is also equally important to go for a home within budget and financial capacity, so that the mortgage amount is affordable to pay back.
It is usually preferable to opt for a fixed interest rate plan for a more stable and predictable financial future. Minimum loan amount must be raised as a principle at the outset itself. Whatever maximum funds from internal savings can be invested should be used up first. This helps to keep the interest costs low from the beginning itself.
Repay Mortgage at the Earliest
If the financial condition of the borrower improves at any time after the loan has been acquired, the borrower can make quicker payments and cut down the term of the loan. The mortgage interest burden keeps getting reduced with regular payments being made.
Mortgage repayments can also be done fortnightly or weekly in many cases. If that is the case, it may be a good idea to repay as frequently as the salary or income is received. This helps to reduce the interest costs that appear minor on the surface, but over a long period add up to a considerable amount.
Refinance Mortgage or Takeover Existing Mortgage
Instead of taking a fresh mortgage, there is also a possibility to takeover an old mortgage of a defaulter that is on sale. If the interest rates on such deal are cheaper, it is preferable to go for this option. At the time of mortgage agreement with the lender, lower interest rate can be negotiated as far as possible.
If the mortgage was acquired at a high rate of interest, but after some time the interest rates become much lower, refinancing the mortgage may be a good idea to consider. Seller financing is another option available in some cases. Here a direct agreement is made between the buyer and the seller about payment spread over a period of time. In other words, the seller finances the home for the buyer at a relatively lower interest rate.
The Six Percent Strategy
In certain situations, the buyer may agree to pay up to 6 percent extra on the agreed sale amount to the seller to cover the closing costs. In this situation, the seller pays for all the closing costs using the money that had been paid extra by the buyer.
Here the hidden gain for the buyer is that the extra 6 percent of the value of the sale gets included in the mortgage. That makes it a tax deductible expense because in most cases mortgage interest is tax deductible. Closing cost as a separate expense is not tax deductible. Therefore, a considerable amount of tax saving is possible with this approach.