How Can You Reduce Your Total Loan Cost?

How Can You Reduce Your Total Loan Cost?

The best way to get your goal accomplished is by paying ahead of time.

Just increase your monthly payment by an amount equal to the additional funds you’ve put in.

Let’s look at a case where you’re taking out a $250,000 30-year fixed rate loan at 4% interest. Your monthly payment would be $1,193.54. Because you are extending the length of the loan, you will pay $429,674 ($1,193.54 x 360) over the course of the loan.

Your loan would be paid in full in 311 months if you were to pay an extra $100 each month. If you exclude your initial investment of $382,291, your total cash outlay would be $402,291, saving you $27,383.

You would be reducing your interest expense every time you made a payment no matter how long you kept the loan.

Other Method

1. If you have less than 20% equity (meaning you put less than 20% down when you bought), you are probably paying for Private Mortgage Insurance every month. Your bank will probably automatically drop it when your loan balance reaches 78% of the purchase price. However, most will drop it at 80%, so call and ask them. Even better, some banks will let you get appraised again (like if you bought then did a bunch of remodeling), and drop the PMI according to the new appraised value WITHOUT having you refinance.
2. Wait. Inflation happens. Wages increase over time. Your mortgage balance does not. Your mortgage payment in proportion to your income should decrease over time. In order to benefit from this, you can’t refinance or buy a bigger house which is where most people fail.
3. Shop around for homeowner’s insurance. People just accept whatever insurance costs since it is a single payment usually made through escrow, but you do have options and can affect the price. I raised my deductible and had my agent find me some discounts. I saved over $80 a month on my policy.
4. Get a tenant.
5. Lease out space in your garage.
6. Sell things by the road if you have a good location.
7. Start a business and claim the home office deduction on your taxes.
8. Reduce other expenses related to the mortgage
   1. Insulate attics, basement, pipes, ducts, walls, and outlets.
   2. Replace old windows, water heater, furnace, AC.