Money Rehab with Nicole Lapin - Mortgage Hacks That Will Save You Big

Episode Date: May 8, 2023

If you know that homeownership is right for you and your finances, you’re facing an uphill battle in this market. But, there are ways you can win— if you’re thoughtful about your mortgage strategy. So today, Nicoles gives you her two-part mortgage cheat code that ultimately shrinks the amount you’ll pay for your house by the time it’s really yours.  If you're stumped on whether buying a home is right for you, listen here: https://link.chtbl.com/VOtTNJhd

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Believe it or not, we are in late spring and in the B.C. area, that's B.C. before COVID, that would mean it's open house season for many real estate markets in the U.S. Of course, a lot has changed since then. Right now, aspiring homeowners are looking at a quadruple whammy. Decreased inventory from the massive homeownership grab that happened during COVID, increased prices because of said decreased inventory, mortgage rate hikes, and banking instability. If you're not sure homeownership

is right for you, I have an episode for you. I've linked it in the show notes. But if you do know that homeownership is a savvy move for you and your finances, you're facing an uphill battle in this market. And there are many ways you can win if you're thoughtful about your strategy, of course. And a big part of this strategy should be, no surprise, your mortgage. So today I'm giving you a two-part mortgage cheat code that ultimately shrinks the amount you'll pay for your house by the time it's really yours. Number one, and I'm not going to mince words here, try your best not to get a 30-year mortgage. I think they are actually one of the biggest scams in the financial world that are made to look innocuous but are actually cancerous to your finances. Look at the numbers.

If you get a 30-year $300,000 mortgage at 4.5%, then your monthly mortgage payment is $1,500 or so. Do you know what that amounts to at the end of 30 years? That is $547,000. You have basically paid double for your house with all of the interest that you've paid over time. The alternative is a 15-year mortgage, which has slightly higher monthly payments of about $2,200 and would total $413,000 at the end of the term. Paying $100, grand more than the original price for your house is not awesome,

but it's not as bad as 250 grand. If you're saying, uh-oh, I already have a 30-year mortgage lapping, keep it, just keep it. One of the things that doesn't suck about them is that they have a lot of flexibility. That means you can turn a 30-year mortgage that you likely got suckered into into a 25 year or a 20 year or even a 15 year mortgage.

Really any number you want simply by upping your monthly contributions. If you can get ahead of your payments even by 100 bucks a month and shorten the length of your term, please do. Make sure you call your lender, though, and let them know that you're doing this and that you want that money applied to your principal and not the interest. The philosophy behind going for the shortest mortgage duration possible is that we're trying to build assets, not get dragged down by debt. The 30-year mortgage is no way to sprint to wealth. It's not even a jog. If anything, it's kind of a crawl. Number two, and my personal favorite because it is so simple and makes a world

of difference, make bi-weekly payments on your mortgage rather than monthly. So basically divide your monthly payment in half and pay that amount twice per month. In that $300,000 home example I just mentioned, you would save more than $40,000 in interest just by paying bi-weekly. That's because paying bi-weekly, you would make 26 payments over the 52 weeks in a year, which amounts to 13 or so regular payments a month instead of the traditional 12. This scheduling shifteroo can knock years and tons of interest off your mortgage. Have the bank set up biweekly payments to deposit automatically? Some banks or credit unions use third party

processors for biweekly payments with high fees. So if that's the case, you can DIY this by basically just picking a month to pay twice. But you can't just mail in extra money. You have to have a conversation with your lender first. It goes something like this. You. Hey there, I would like to set up biweekly payments for my mortgage. The lender says, great, we can set that up for you. You say, will those extra payments go toward my principal? Lender says, yes, I can help you with that, but we need a letter specifically saying that you want your additional payment

to go toward your principal, as our default procedure is to hold extra payments in a non-interest-bearing account. You say, so glad I asked. Do you have a form letter stating this that I could just sign? Electronically, it would be even better. The lender says, sure thing. Look out for a secured email from the bank and follow the

instructions to sign and submit. And scene. Another strategy is to prepay half of next month's principal, which cuts your payments in half in the long run. Millions of Americans dutifully pay their mortgages every single month without knowing the power of pocket change prepayments, even if they have the money to do so. Paying off even a little extra of the principal, not the interest, of the loan early can save you from the astronomical interest you wind up paying on your mortgage. It hurts my heart so much when a half a million dollar home ends up costing you a million bucks after interest payments in the long run. My guess is that it hurts your heart, too.

For today's tip, you can take straight to the bank. When you're setting up your mortgage, you'll want to consider mortgage points. I think of these points as being prepaid interest fund bucks, where you can basically pay cash up front to get a lower interest rate for the long run. You might be required to buy points if your lender feels that your credit or your assets aren't necessarily up to snuff, but you can also choose to buy points at closing to reduce your interest rate, which is a smart way to benefit from having a lower rate down the road if you have the cash now. Each point you pay at closing lowers your interest rate 0.25% or 25 basis points.

So in exchange for paying more upfront, you can lower your interest rate costs over the life of the loan. So if you paid, say, two points at closing, you could bring down a 5% rate to 4.5%. That is a lot of scratch over the life of the loan. But like most perks of homeownership, you're going to need to stay in that house a long time to reap the benefit. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to

make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN.

That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan L Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And

let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.