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The cost of buying a home today is nearly triple what it was in 2000. 

And asides that, mortgage applications, pre-qualifying processes, and countless other details can be daunting. As a result, many prospective homebuyers are nervous about taking out a mortgage. 

You don’t have to be scared of the mortgage process. But with a few tips, you can save thousands of dollars over time. In this article, we’ll discuss some information to help you save money on your mortgage. 

What are the Different Types of Mortgages?

There are many types of mortgages available to homebuyers, and each has its pros and cons. The most common ones are 

• Fixed-rate mortgages
• Adjustable-rate mortgages (ARMs)
• Government-backed loans such as FHA loans and VA loans

Fixed-rate mortgages offer predictable monthly payments throughout the life of the loan. ARMs typically start with lower interest rates than fixed-rate loans, but the rate can change over time, resulting in higher monthly payments. Government-backed loans often have favourable terms for borrowers, such as low down payment requirements or flexible credit guidelines.

Choosing the right type of mortgage is based on your financial goals and situation. Compare offers and talk to a lender to learn more about your options.

Mortgage Tips to Save You Thousands

If you are considering taking out a mortgage, the following tips can save you thousands of dollars over the life of the loan:

1. First, Shop Around for the Best Rate 

The first step to saving money on your mortgage is ensuring you get the best rate from your lender or financial institution. There are several lenders, so compare rates before settling for the most favourable. 

2. Put Down a Large Down Payment

The higher your down payment—the lower your monthly payment, mortgage insurance costs, and interest rates will be. If you can afford a 20% to 30% down payment on your house, you’ll save more money. And also, you won't need private mortgage insurance. 

3. Increase Your Credit Score

If you have a low credit score, you’ll have to pay more interest and fees on your mortgage. On the other hand, if you’ve got a high credit score, you’ll pay lesser fees, and save more money.

That said, how can you improve your credit score?

• Avoid late fees and pay bills quickly: Ensure you keep track of your existing payments. It's easy to get carried away with life and miss a payment. Set up automatic payments, and never let your bank balance go beyond a designated amount. 

Your credit score takes a red plunge every time you miss a bill and your card takes a default charge. 

• Keep a low credit card balance: Credit utilisation (the % of your total credit that you’re currently using), determines a large part of your credit score. Keep your credit utilisation below 30% to maintain a healthy credit score.

4. Get Rid of Private Mortgage Insurance

Private mortgage insurance is not required if you have 20% equity in your home. Once you reach the 20% equity level, cancel your PMI to discontinue paying insurance fees.  

5. Refinance Your Mortgage

If interest rates have dropped since you originally got your mortgage, refinancing would save you money on your monthly payments.

Is Mortgage the Same As a Loan?

Though most people use mortgage and loan interchangeably, there are some major differences. 

A mortgage is a type of loan used to purchase a property, usually with the intent of living in the home long-term. On the other hand, a loan can be used for various purposes and may not be secured by any collateral.

While both types of financing can help you achieve your financial goals, understand the key distinctions between them before making any decisions. 

What to Consider Before Taking Out a Mortgage

Mortgages are repaid over 15-30 years, which could be a big financial commitment. And if you default on your mortgage payments, you could lose your home or end up owing more money than your home’s worth.

There are several things to consider when taking out a mortgage, such as 

• Size of the down payment
• Length of the loan term
• Type of interest rate (fixed or variable)

You'll also need to decide if you want a conventional mortgage or an adjustable-rate mortgage (ARM). It's crucial to ensure you can afford your monthly payments before taking out a mortgage. 

Diversifying Your Investments

Though your home might be your most significant investment, it's not the only one you should have. Diversifying your investments can help reduce risk and protect your assets against unforeseen circumstances like job loss or medical emergencies. 

Here are a few tips on how to diversify your investments for a mortgage:

• Buy a mix of properties

Don't put all your eggs in one basket by buying just one property. Instead, consider purchasing a couple properties like single-family homes, condos, townhomes and other investment properties. This will help you spread out the risk and potential return on your investment.

• Don't put all your money into real estate

While real estate can be a worthy investment, it's not the only option available. Consider investing in stocks, bonds, mutual funds and other options. Diversifying your portfolio can help you achieve financial stability and better manage your risk. 

• Work with a financial advisor.

A financial advisor can help you maximise your mortgage. They’ll also provide professional guidance on managing your investments, and help you reach your financial goals faster.

Wrapping Up: Seek Financial Advice

Taking out a mortgage is a big decision you should only make after careful consideration. 

Not sure whether a mortgage or loan is right for you? New to business and investments? Then speak to us at Altus. We provide financial advice and guidance without jargon. Let’s help you make the right financial decision today!