Are you missing out on these easy
There are some mortgage savings that are relatively easy to get, but often overlooked.
Easy ways to save on your mortgage
Are you thinking of buying a home or refinancing the one you own, but unsure if you can handle the costs? Well, good news: There may be some relatively easy savings that you’re missing out on.We tracked down five such savings opportunities. Take a look to see if you can catch a much-needed break.
Tax Deductions for Paying Points
First, let’s define points. This is simply a way for you to “buy” yourself a better interest rate from the lender by giving the lender money up front when you get your mortgage or refinance.
Each point is equal to one percent of the mortgage amount. So, if you borrow $300,000, one point will cost you $3,000.
And what will it get you? Each point you pay will lower your interest rate about an eighth of a percent on a 30-year, fixed-rate mortgage, says Jim Duffy, a senior loan officer with Primary Residential Mortgage, Inc.
But in addition to saving you on the interest rate, that point will save you come tax time. “Points are prepaid interest and may be deductible as home mortgage interest. If you itemize your deductions, you can deduct the interest paid that year for your mortgage,” says Doug Lebda, founder and CEO of LendingTree, an online source for competitive loan offers.
There are some restrictions, such as the home must be your primary residence, and others, which are outlined in the IRS’s Publication 936, a document that outlines the rules for deducting home mortgage interest, says Lebda. But if you’re the average homebuyer, you’ll likely meet the restrictions.
Do you put out fires? Or teach elementary school? Well, you might be entitled to some sweet savings when it comes time to buy a home.
For instance, there are both public and private organizations that offer benefits such as lower fees, better interest rates, less-stringent credit requirements, and more for those serving as firefighters, teachers, police officers, government workers, health care workers, and other professions, says Timothy Manni, the managing editor of HSN.com, an online mortgage resource.
One example is Ohio’s Housing Finance Agency’s Heroes Product, which, among other benefits, offers fire fighters, paramedics, police officers, health care workers, and teachers, interest rates up to a quarter percent lower for first-time buyers.
Another example is Mortgages for Heroes, a private organization that has partnered with local unions to offer similar benefits, including help with less-than-perfect credit, to workers in the same fields as well as municipal employees and veterans.
With such opportunities available, you should make sure you research whether you qualify for special benefits because of your past or present career, says Manni. It could not only help qualify you for a mortgage, but also get you a pretty good deal.
Refinancing to a Lower Interest Rate
If you think the days of refinancing are over because interest rates have inched up, you’re wrong. In fact, rising interest rates could be the very reason you might want to look into refinancing if you already own a home, says Duffy.
Why? Well, most analysts believe that interest rates will rise for the foreseeable future, says Duffy. That means that your ability to lower your interest rate will only lessen or disappear over time if you have a rate higher than today’s average rate, which is 4.10 percent for a 30-year, fixed-rate mortgage as of August 21, 2014 according to Freddie Mac.
Now for the tricky part. How much do you need to lower your rate by to save money? After all, refinancing does come with a cost, usually around 2 to 3 percent of the refinanced amount, says Duffy. He says that if you can lower your interest rate by 1 percent or more, you should definitely look into refinancing.
However, he is quick to add that every situation is different. For instance, if you plan to sell your home within a few years, you may not have time to recoup the cost of refinancing through a lower monthly payment.
Improving Your Credit
If you’re considering applying for a mortgage or refinancing the one you have, your credit rating is a very important factor. It can determine not only whether or not you get a mortgage, but how low your interest rate will be. So the higher credit rating you have, the lower your rate will be, if all other factors are the same.
Here’s a chart from FICO, a commonly used credit rating agency, that illustrates how your credit score could affect the cost of a $300,000 30-year, fixed-rate mortgage.
|FICO Score||APR||Monthly Payment|
The chart illustrates the point that credit plays a huge role in what kind of rate you receive as a borrower. But, Lebda explains, “There are some things consumers can do before shopping around to improve credit scores, like paying down credit card debt [or consolidating] and making payments on time for several months.”
More specifically, if you want to bump up your credit score by as much as 10 points almost overnight, pay down your credit cards to a third of their credit limits, says Ken Lin, CEO of CreditKarma.com, a site where consumers can access their free credit reports.
Here is a simple example of what he means. Say you have two credit cards, each with $5,000 limits and your outstanding balance on each is $2,000. Your total available credit would be $10,000 and your total outstanding balance would be $4,000, or 40 percent of your available credit.
If you paid down your total debt on those cards by $700, bringing your outstanding balance to $3,300, or approximately 33 percent of your available credit, it could raise your credit score. And according to the FICO chart above, that could save you a lot of money over the life of your mortgage.