6 Ways Buyers Can Save on Their Mortgage

Photo Credits: Kindel Media

With mortgage rates on the rise, it’s easy to feel extra financial stress when buying a new home. In the past month, mortgage rates have hovered around 7%. They are predicted to fall in the second half of the year, but affordability continues to be an issue when buying a home. Here are 6 ways homebuyers can save on their mortgage and afford their dream home.

Shop around:

Credit: Alena Darmel

Tens of thousands of dollars can be saved from shopping around and getting quotes from multiple different mortgage lenders. Different lenders have different qualifications and standards used when deciding who to lend money to, which is why the exact same person can get such different quotes from other lenders. Make sure you get at least two different quotes, but keep in mind that buyers who get five or more quotes can save almost three times as much money over the lifetime of their loan then those who get two quotes. 

Negotiate:
While you may know it's standard to negotiate the price of your new home if necessary, many people do not consider negotiating a mortgage rate. The amount of room to negotiate a mortgage can depend on the lender but some lenders will consider negotiating on either the rate or the closing costs. One way to improve your negotiation is to show quotes from other lenders and ask for a better rate from them in order to keep your business. Do not be afraid to ask for a better rate, it never hurts to ask!

Buy down the mortgage points:
Mortgage points are a type of prepaid interest, meaning you can choose to pay more upfront and receive lower interest rates and monthly payments. The downside to this is that it costs more upfront; however, if you have the money to pay extra to buy down mortgage points you can save money in the long run. When considering whether buying down mortgage points is for you, ensure you have enough money saved that spending the extra money on points will not deplete your savings past a point you are comfortable with.

Ask for discounts:

Few people know that banks can sometimes offer “relationship discounts” to customers that already bank with them. These discounts can include waiving the loan processing fee or a certain percentage off of your loan. Ask your bank if they offer any relationship discounts before you sign your mortgage!

Watch out for float-down policies:

A float-down option in a mortgage allows the borrower to adjust their rate downward if mortgage rates decrease during the closing timeline. Different lenders have different rules regarding their float-down policy, so make sure you ask what your lenders are before you have locked down your mortgage with them. Some policies include charging a percentage of your loan amount as a fee if you switch to a lower rate. Educate yourself on the float-down policy for the different lenders you are considering!

Consider the terms:

Although a 30-year mortgage is the most common length for homebuyers, a 40-year mortgage may also be offered by some lenders. A longer loan saves you money on your monthly payments, but you will likely be paying more interest in the long term. You also may be able to get an adjustable-rate mortgage, which starts with a lower interest rate and then resets to the current rate every 5 to 7 years. Refinancing a loan down the road when there are lower interest rates is another thing to consider.