Seven simple ways to cut mortgage costs

Do you want to save on your mortgage costs, but not quite sure where to start?

You're not alone, according to Stephanie Moulton, a mortgage expert and public affairs professor at Ohio State University.

"It can be hard to know where to go for information and who to trust for advice related to mortgages," says Moulton.

Ready to start saving on your mortgage? Read on to learn more about seven cost-saving mortgage tips.

Savings Tip #1 - Shop Around for a Low Annual Percentage Rate (APR)

You know how gas stations, even ones at the same intersection, can offer different prices? Same goes for mortgage banks. As a result, you'll want to shop around for the lowest APR you can find.

"APR is the annual percentage rate, and includes all of the upfront costs of originating the mortgage, in addition to the interest rate," Moulton says. "It can be helpful for comparison shopping."

And shopping around is key, according to the Federal Reserve, also known as the central banking system of the United States.

"You'll want to compare all the costs involved in obtaining a mortgage," notes the Federal Reserve's website. "Shopping, comparing, and negotiating may save you thousands of dollars."

Savings Tip #2 - Refinance the Right Way

Refinancing: it's the process of paying off your current mortgage with a new one. And why would anyone ever want to refinance? Because refinancing could help current mortgage holders get a lower interest rate, and in effect, save money.

"A lower interest rate can result in a lower monthly payment, or it can allow you to pay off your mortgage more quickly," Moulton says.

However, refinancing isn't for everyone. Just consider Moulton's advice:

"A general rule of thumb before refinancing is to total up the costs associated with refinancing and divide this by the amount of money you will save each month through refinancing," Moulton says. "If you plan to stay in your house longer than it will take you to pay off the costs associated with refinancing, then it may be a good option."

Savings Tip #3 - Modify your Existing Loan

Loan modification may sound like the same thing as refinancing, but it's not. Here's the difference: A loan modification can help you save on your mortgage by changing the terms of your current mortgage, rather than getting a new one through refinancing.

Keep in mind, though, that loan modification isn't an option for everyone.

"Homeowners typically have to demonstrate some form of hardship, such as unemployment and/or unaffordable payments to qualify for a loan modification," Moulton says.

If you qualify, a loan modification could help you save money by lowering the interest rate on your mortgage or lengthening the term of the mortgage (from 25 to 30 years, for example). These changes can help lower the cost of the mortgage and possibly prevent foreclosure, she says.

"If you are behind on your mortgage payment, the first step is to contact your lender," Moulton says. "They can't help you if you don't contact them."

In addition, Moulton urges homeowners experiencing hardship to contact a housing counselor certified by the U.S. Department of Housing and Urban Development (HUD). For more info, visit www.hud.gov.

Savings Tip #4 - Make Extra Mortgage Payments

Here's another great way to save on your mortgage - if you can afford it: make extra payments.

This could include making as little as one extra mortgage payment per year, or possibly paying an additional amount each month, Moulton says.

But like any financial decision, it's important to weigh the pros and cons of such a move, she adds. You may want to talk to a financial planner before pursuing this path.

"Typically mortgage interest rates are lower than the interest rates on other types of debt [like credit card debts and car loans], and it may save more money in the long term to pay down your highest interest rate debts first," says Moulton.

Savings Tip #5 - Reassess your Home's Value

Do you know what your home is worth? It's a timely question because many properties have dropped in value recently. Fortunately, there's a money-saving silver lining for folks in this category. Actually, two silver linings.

First: You may owe less property tax.

Second: You may be able to stop paying for private mortgage insurance (PMI).

"Typically, lenders charge PMI when a homeowner takes out a mortgage for 80 percent or more than the value of the home," Moulton says. Once the balance falls below 78 percent of the value of the home, lenders are typically required to terminate the PMI charges, she adds.

By having your home's value reassessed, you may learn that PMI is no longer required or can be canceled more quickly. An added benefit is that it may also lower the property taxes you pay Uncle Sam.

Savings Tip #6 - Consider a Reverse Mortgage

A reverse mortgage is geared to seniors. It allows homeowners over the age of 62 to convert the equity in their home into cash, without requiring repayment of the loan until they move out of the house or pass away.

"The primary benefit is that it allows seniors to remain in their home and can reduce their financial burden," Moulton says.

Unfortunately, there are disadvantages, too.

"The primary disadvantage is that there are costs associated with the reverse mortgage, and if the homeowner does not intend to or is not able to stay in the house for the longer term, then the costs of taking out a reverse mortgage may outweigh the benefits," she says.

Moulton urges seniors to investigate their home equity and reverse mortgage options in more detail by visiting the National Council on Aging's Home Equity website at www.homeequityadvisor.org.

Savings Tip #7 - Research and Ask Questions

Handy articles like this are a great starting point for tips on how to reduce your mortgage costs.

But don't stop here. You should partake in some of your own research by asking mortgage advisors and lenders questions. In fact, ask yourself questions, too.

Moulton says it's important to identify how much you can comfortably afford for a mortgage payment. Just because you qualify for a loan doesn't mean it makes sense for you and your budget.

As a final bit of advice, Moulton says you have to look at your home as more than just a home.

"Treat your home as a financial asset, not just a place to live," she says. "There are certainly non-financial benefits to homeownership. However, it is important to manage the financial side of the home to make sure that you can continue to receive the non-financial benefits."

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