How to Save Money with Your Mortgage

Once you understand the variables in a mortgage you can calculate how to save a lof o meny by making the right decisions when choosing your mortgage.    The interest rate is one important key but it also depends on the term you select.

Choosing the right Term for your Mortgage

Generally the longer the term of the mortgage the higher the interest rate that you pay.  It costs you a premium to lower the risk that morgage rates are going to go up above the interest rate you agreed upon when you established the mortgage.   You can choose from various terms including a variable rate mortgage to terms of anywhere from 6 months to one, tow, three, four, five, seven and ten year terms.  When I looked recently a six month mortgage rate was 1.5 percent lower than for a 10-year term.   

If you choose the lower term and interest rates stay low you can save big.  You generally pay a significant premium to lock in to a five-year term.  If youyou look at the average interst rates for both one and five year term on a $150,000 mortgage The 1.5 interst rate difference would cost you $40,000 over the term of the mortgage.

But despite what you can save with a short-term mortgage it's not for everyone.  You have to be able to feel comfortable with the added risk that interest rates may rise and cost you more money.  The recent history has shown that variable and short term interest rates have always been the best deal.  However with interest rates creeping up locking in before rates rise may make more sense in the short term and also allow you to sleep better at night.