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Major monthly expenses can seem like a drag, especially the mortgage, which you know is going to be a significant part of your budget for a long time. 

However, it doesn’t have to be intimidating or cause you stress. Just like every financial decision, it just takes proper planning, sticking to your strategy, and avoiding common mistakes to ensure your success. 

It’s also paramount to think ahead in terms of saving for a strong down payment and having emergency funds for unseen circumstances – whether home repair costs or personal emergencies.  And you should never underestimate the benefits of an excellent credit score.

Follow these 4 tips and you will be able to breathe more freely while handling your mortgage and embracing life to the fullest. 

1. Avoid Private Mortgage Insurance

Private mortgage insurance (PMI) protects the lender in the case of a home foreclosure; but for you, it is an extra monthly expense that is best avoided.

The average annual PMI premium typically ranges from .55 percent to 2.25 percent of the original loan amount per year (  So PMI is likely to add several thousand dollars per year to your expenses, or 100-200 a month or more depending on your loan amount and your credit.

Fortunately, you have a way to bypass this completely. If you pay 20% or more as your down payment for your home, most lenders will not require PMI.  

This one’s a no-brainer. Essentially you would be giving away money for no return.

This is why you have to be honest about what you can really afford, so you don’t get locked into years of paying PMI in addition to your mortgage. 

By saving enough for a strong down payment, you free up this extra income that you could use to pay towards your principal, which is another key to big long-term savings.  

2. Focus on the principal

Seeing that your interest rate is directly proportional to your loan amount, the more you can chop away at the principal early on, the more you can save in the long term.

There are two ways to look at it. You can pay the minimum now which will accrue thousands in interest over the term of your loan. Or you can dedicate more of your budget to a higher amount within your means now, which will ultimately save thousands in reduced interest. 

 If this seems like a challenge to allocate more funds to your principal, look at other monthly expenses that aren’t necessary. 

For example, paying a car note is not the best idea at the same time as paying off your mortgage. All of that money could go to your principal, and this applies to credit cards or expensive appliances that require monthly financing. 

Hold off on the luxuries now and you can enjoy the better, updated versions later with all the money you will have saved. Make sure to specify with your lender that your additional payments are going toward your principal and not going toward the interest for your next month’s down payment. 

3. Avoid Prepayment Penalties 

You may not be aware that some lenders will penalize you for paying too much too soon, because their profits are based on the interest that they want you to pay them.  

This should not deter you from focusing on paying more than your minimum per month, but it’s important to be aware of this possibility.

Make sure to speak to many different lenders about their policy with this. This also ties into putting as much as you can as a down payment early on, which is the absolute best way to keep your monthly costs down and avoid penalties for the term of your repayment. 

Read also: 7 Things to Consider to Make Mortgage Payments Stress-Free 

4. Keep an Emergency Fund 

Let’s say you have done an excellent job of cutting out all unnecessary expenses and can dedicate 70% or more of your income to your mortgage every month.  That’s great, but not necessarily the best route.

As you know, life happens and you have to be financially prepared for the worst. This is more serious after you make a commitment to your loan.  So you have to consider a way to balance your savings while paying your mortgage. 

Your savings to payment ratio will be specific to your situation, such as how many family members are in your home and potential medical risks. 

Ideally, you will want to have a lot of money remaining in a savings account after you make a 20% or more down payment.

This is the best strategy for locking in a great mortgage rate that minimizes stress and lets you potentially save tens of thousands over the lifetime of your loan. 

Stock Photo from Puttachat Kumkrong @ Shutterstock

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