Home Refinancing – How to Save Costs

Home Refinancing

#1. Lower the interest rate

The quickest way to pay less for your home refinancing loan is to pay less for the cost of borrowing money. Most interest fees are tied to the rates that the lender must pay to their investors. An interest fee that is even one percent lower can make hundreds of dollars difference in the overall cost of the home mortgage refinance. Many times, the amount of interest rate that you will pay as the cost of borrowing money is dependent upon the credit scores which show on your homeowners credit report. Keep your credit score in the high 700s or even 800s and you will pay much less for mortgage loans.

#2. Reduce the loan term

Another way to reduce the cost of home refinancing is to shorten the number of monthly or periodic payments for the duration of the loan. Amortized payments spread over 20 years cost a little more each month, but not as much as the cost of a 30 year mortgage loan. So, pay slightly more each month for fewer years and you will make huge savings on the total amount of interest that you pay over the cost of the loan period.

#3. Pay a little extra each month

Even if you can’t shorten the term of the loan from 30 years to 15 years, you can add five or ten dollars with each payment to apply to the principal. You will save hundreds or even thousands of dollars in interest payments as you reduce the principal balance each month. Be sure that you do not agree to a home refinancing loan that charges a pre payment penalty, as this would reduce the effectiveness of this cost saving measure. It is amazing what a difference just a few extra dollars daily–about the cost of a cup of coffee– will buy over the course of a 30 years mortgage payment amortization.

#4. Pay a little cash up front

Another trick that can save you hundreds or even thousands on a home refinancing loan is to make your first installment payment at loan closing. This acts as an advance payment against the principal and will save much in interest over the course of the loan. Depending on the loan term, just a few dollars can reduce the impact of the interest rate by significant amounts over time.

#5. Negotiate on loan fees

If a borrower is not diligent about negotiating every aspect of the home refinancing loan, he or she can find themselves paying a lot more money for the loan than required. There will be brokers fees, loan origination documents, title searches or other costs added to the loan fees. You will find your portion of the loan proceeds can be significantly reduced by not stopping the creeping fees.  It is important that you make sure you understand each component of the refinancing loan you are negotiating and insist on the lowest possible rates on each and every factor. If you apply each dollar saved to the repayment of the loan, you will gain even more reduction in the cost of your loan.

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