Interest rate is the most obvious way people intend to save money on their home. Lower interest rate means lower payments, and less overall cost for the loan in general. If you have bad credit, you already expect that you're not going to get the best interest rate. But there are other ways to save money on your loan, until you can improve your credit. Use these tips for ways to save money on your home mortgage.



Pick the right kind of home mortgage.

Short term Adjustable Rate Loans have lower interest rates than 30-year fixed-rate home mortgages. There are 2 year, 3 year, 5, 7 even 10 year ARM loans. This means that the monthly mortgage payment will be fixed for the first 2 years (or 3 years, 5 years, etc). After the initial fixed period, the monthly payments will adjust (change with the index) for the rest of the 30 year term. I normally would not suggest this type of loan if you plan to stay in the home for a long period of time, but if you are purchasing or refinancing with bad credit, the best thing you can do is to work on your credit over the next year or so and then refinance to get the best rate possible.

Avoid Mortgage Insurance.

A loan with less than a 20% down payment requires mortgage insurance. This was created to protect the banks investment. The mortgage industry had a bright idea to avoid mortgage insurance by splitting your loan into a combo loan. A 1st mortgage and a 2nd mortgage. Your first mortgage being 80% of the loan, and the 2nd the remainder of what you did not pay as a down payment. You can ask to compare the difference in monthly payments on a loan with mortgage insurance, and the payments on a combo loan, to see which payments are lower. If you choose to pay mortgage insurance, watch your loan closely. Once you've paid 20% of the loan make sure that to drop the insurance.

Make More Frequent Payments.

There are other options that come with a mortgage, one is a bi-weekly payment. If you get paid on a bi-weekly basis, this makes a lot of sense. You can ask your broker to put you on a bi-weekly payment plan. Each time you make an extra payment, even if it's just one, it shortens the life of your loan. By making two payments a month instead of one, it takes you a little over 23 years to repay a 30-year fixed-rate mortgage.

Make Additional Payments.

When you make extra payments in addition to your regular payments, make sure they go toward the principal of the loan. So, the balance of the principal, rather than the interest, is reduced by any extra money you pay. When you do this, you can reduce your home mortgage payment dramatically.

Using just one or two of these methods you can save hundreds or even thousands of dollars in the total cost of your overall mortgage and even pay off your loan faster.