3% down-payment mortgages are popular loan options that can reduce up-front costs and make homeownership accessible for more Americans. Even with broad consumer awareness, many people may not know about one simple step homeowners can take to cut their mortgage rates and, perhaps, save thousands of dollars.
In the video segment below, The Motley Fool analysts Kristine Harjes and Nathan Hamilton talk about this option and why homebuyers should consider taking advantage of it before finalizing their mortgage loan.
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Kristine Harjes: When you're looking at getting a mortgage there are so many little things that you can do that can make a huge difference in the amount of money that you end up paying toward your house.
Nathan Hamilton: Yeah.
Harjes: Today we wanted to share with our listeners one surprisingly simple step that could save you $8,280 on your mortgage.
Hamilton: Yeah. That's a hypothetical based on a typical mortgage nowadays.
Harjes: But totally realistic.
Hamilton: But very realistic. It's not hyperbole, this is an actual savings that you can harvest over the life of a 30 year mortgage. Specifically if you're looking at a 3 percent down mortgage, which they're offered across many banks and so forth, you can take part in a mortgage education course. What that is specifically is it will reduce your interest rate by about 1/8 of a percentage point for qualifying people that the bank approves, but it is useful.
Harjes: Yeah. That is where we get the $8,280 from is if you have a $309,000 mortgage over a 30 year period at 4.31 interest rate today, there's your savings if you knock off 1/8 of a percentage point. It's over $8,000.
Hamilton: Yeah. If you look at it that's based upon like you mentioned current interest rates and recent data on the average mortgage size. Really, you have to balance it out. I almost look at this mortgage education course, I'm thinking back when I was 15 1/2 years old and I went to driver's school and you had to sit there, it was boring. I don't know if that's what it's like, but you do pay a $75 fee. Typically the course takes about four to six hours to complete. If you work it out, in my personal scenario I look at everything as what I get paid or what I save on an hourly rate. Four to six hours to save $8,280 is a pretty good hourly rate on your time.
Harjes: That's a solid return on investment.
Harjes: I know our colleague Michael Douglass has gone through one of these fairly recently. He is-
Hamilton: We'd have to see what it was all about.
Harjes: He's in the market to buy a house. I came in on a Monday morning and I said, "Hi Michael. How was your weekend?" He was stoked. He's like, "Harjes, I went to a class about mortgage education and it was great. I learned so much about how I can save money on my mortgage." Granted, Michael is kind of a money nerd.
Hamilton: He's a finance dork.
Harjes: He would love this kind of thing, but if you're in the market for a home, I have to think that you're so personally invested in this kind of information that it would be well worth your time, both on a financial level and just a personal education level.
Hamilton: Yeah. If you look at it, we're always advocates for just having even more than a basic financial education, be it for investing which we're known for at the Motley Fool, but also on other major personal finance issues. Your mortgage is a big monthly payment so it definitely pays to know the basics and more so.
Harjes: Absolutely. If that is not enough for you, those four to six hours, and you're looking for even more mortgage content, you can check out fool.com/mortgages where you can find a ton of helpful mortgage tools including access to highly rated lenders with low rates. On top of that you can even get our free guide called "5 Tips to Increase Your Credit Score Over 800."