Mortgage loan agreement application with house shaped keyring

Should You Continue Renting If You Can’t Afford a 15-Year Loan Payment?

No thanks to the housing boom in Utah, it is much more expensive now to transition from being a tenant to a homeowner. The “15-year mortgage or bust” has become a popular school of thought on home affordability among savvy real estate experts in the Beehive State.

Compared to 30-year mortgages, 15-year ones have fewer months, so their monthly payments are much higher. Although they cost more money in the short term, they can save you more on interest in the long run.

Does not qualifying for a 15-year mortgage means you cannot afford to be a homeowner? Any realtor in South Jordan, Salt Lake City, or Provo will beg to differ. Yes, it is better if you can manage 15-year loan payments, but settling with a 30-year mortgage does not make you unfit to own a house.

In fact, you can still save on interest even if your home loan will not mature until 360 months. Below are effective strategies to minimize your mortgage’s overall interest cost:

Negotiate the Interest

Many borrowers do not attempt to haggle, thinking that the interest is set in stone. This notion could not be more wrong. Mortgage rates are as negotiable as car prices and home improvement contracts. Trying to talk your way to a lower interest rate does not necessarily mean you are cheap. In fact, it actually demonstrates your smarts as a customer.

Of course, avoid negotiating if you have no bargaining chips. If you have unimpressive income, a spotty employment history, or bad credit, you have less power to ask for lower interest just because you want to. If you do not have stellar credentials, strive to make yourself a better customer first. It may take some time, but at least you will get better results when you have solid arguments to demand such a request.

Increase Your Down Payment

Only a few things can compel a lender to decrease the interest rate than a large down payment. The bigger the money you are willing to pay down, the smaller funds you borrow. In consequence, a lender has less risk to absorb your business. If you can put down as much as 20% of the property’s cost, you can even avoid the private mortgage insurance. This extra expense can increase your monthly payments for several years.

Pay the Closing Costs

Closing costs are upfront fees that must be paid to complete the real estate transaction. They inflate your overall cost of borrowing, which is why it is tempting to explore every avenue to avoid them. However, it may be wiser to cover them yourself than ask your lender to pay it in your behalf. A no-cost mortgage involves no closing costs, but it raises the interest rate, which may translate to more expenses down the road.

Seek to Pay Extra in Between Deadlines

homeowner handing payment to the realtor
If there is one thing you should negotiate the hardest other than the interest rate itself, it has to be the prepayment option. Being able to pay more than what you are supposed to every month can bring your principal more quickly, which diminishes the interest you have to pay over time. Not all lenders would agree to this, but it is worth finding the one who is willing to work with you.

Try your chances on a 15-year mortgage, but do not fret if you cannot manage its projected payments. If you play your cards right, you can take out a 30-year loan and still save a ton on interest.