Keeping your mortgage payment low is a smart financial move.
Your mortgage payment will probably be the biggest bill you have to pay each month. It's also a bill you are going to be stuck with for a very long time since mortgages are usually paid off over several decades.
When you commit to a huge financial obligation, you want to be as smart as possible about borrowing. And that means looking for ways to keep your mortgage payment low. Fortunately, there are four tried-and-true techniques to keep your monthly mortgage costs down. Here's what they are.
1. Make a good-sized down payment
Putting a lot of money down on a house helps you keep your mortgage payment low for a few key reasons.
First and foremost, a larger down payment means you won't be borrowing as much money. And the lower the principal balance (the amount you borrow) is, the lower your monthly payments will be.
If you make a large down payment (20% or higher), you should also be able to avoid paying private mortgage insurance (PMI). PMI is required for loans with small down payments to protect lenders in case of foreclosure. But this extra payment increases your monthly mortgage costs.
A large down payment also reduces the risk to lenders, so they'll likely offer you a lower interest rate than they would if you put less down. Plus, you'll have more choice of lenders when you aren't restricted to the ones offering low down payment loans. And that means you stand a better chance of getting a low mortgage interest rate.
2. Shop around
Different mortgage lenders offer different loan terms. You don't want to just get a loan from your bank without checking what others offer. If you don't shop around, you could end up accepting a higher interest rate or a loan with higher fees than another lender would have offered you.
When you borrow a large amount of money for a long time, it's essential to make sure you're getting the best possible deal to keep your payments as low as you can.
3. Get your finances in order before applying
Your credit score, the amount of debt you have relative to your income, and the stability of your wages are just three of many factors that lenders look at when they decide what interest rate to offer you.
The better your financial credentials, the better the rate you'll get -- and the lower your monthly payments will be as a result.
4. Buy a reasonably priced home
Finally, you want to buy a home that doesn't cost too much. By keeping your budget reasonable, it'll be easier to save up a down payment that's large relative to the home's value (thus reaping the benefits of a big down payment). You'll also keep your principal balance low, which keeps monthly payment costs affordable.
By taking these four steps, you can ensure that your monthly mortgage payment will be as low as it can be -- and that it fits comfortably in your budget without compromising your other important financial goals.
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