3 Secrets Big Banks Don’t Want You to Know About Mortgages
When it comes to getting a mortgage, the process can be overwhelming. And, taking on a mortgage is likely the largest expense you will incur. If you want some insider information that big banks won’t tell you when it comes to saving money on your mortgage, explore these few tricks of the trade from your friendly Piedmont Advantage Credit Union mortgage representatives.
1. Paying Your Mortgage Biweekly Can Save You Thousands
Paying biweekly adds an extra payment each year, which helps reduce the amount of interest you ultimately pay and helps pay down the home loan faster.
Here’s the rationale:
- There are 52 weeks in a year, 26 bi-weekly periods, and 12 months.
- If you pay twice a month, then you’ll make 24 payments during the year instead of 12.
- If you pay your mortgage biweekly, you’ll end up making 26 payments throughout the year, which adds one extra month’s mortgage payment each year.
The extra money should be applied directly to your principal (the amount you owe, separated from your loan interest), which helps reduce your interest over the life of the loan. Contact your lender for more details and to find out if there are any prepayment penalty fees. If you haven’t secured your loan terms with your loan officer, make sure to ask about this and get the best mortgage.
Here’s how the savings could break out:
- Mortgage and loan amount: $200,000
- Interest rate: 5%
- Loan term: 30 years
- Property tax: 1.25%
- PMI: 0.5%
- Home insurance: $1,000/year
|Details||Pay Mortgage Monthly||Pay Mortgage Biweekly|
|Time to Pay Off Loan||30 years||25 years and 3 months|
|Total Interest Paid||$176,011.57||$141,654.98|
|Savings in Interest||$0||$34,356.58|
2. You Don’t Need Perfect Credit to Buy a Home in North Carolina
Did you know that you can qualify for an FHA loan with a credit score of 580? That score would allow you to qualify for a down payment of only 3.5% of the home’s purchase price, according to HUD. If your credit score is below 580, you may not be prohibited from getting an FHA loan, and instead may just need a 10% down payment. Note that people with lower credit scores may face lender overlays, which are additional guidelines that lenders impose on top of the government’s qualifications.
3. Try to Close at the End of the Month to Save Money
Our third trick the banks don’t want you to know is that you could save money on closing costs if you close on your home at the end of the month. If you close on your home at the beginning of the month, your prepaid interest increases. However, if you close toward the end of the month, your first mortgage payment will be due sooner.
For this reason, many people try to aim to close toward the end of the month, and it’s often a busy time for mortgage lenders, which can increase the risk of closing delays and human error. Some lenders offer a credit to those willing to close earlier in the month. If you are getting a loan backed by the FHA or VA, closing by the 7th of the month typically helps you earn a credit. For those getting a conventional mortgage, closing by the 10th of the month can help you get a credit. Come in to any Piedmont Advantage Credit Union branch and see a mortgage officer for these details ahead of time to see what’s available to you.