Most people like to save money when possible. Whether you’ve bought a house or are looking for a new home, you can save on your monthly mortgage payments as well. First, we’ll breakdown your monthly payment into parts and define each component. Then, we’ll talk about ways you can save money on each component to lower your overall monthly payment.

PITI – Your Monthly Mortgage Payment Breakdown

Your monthly payment consists of PITI: Principal, Interest, Taxes, and Insurance. Principal refers to the amount of money you borrowed, and interest refers to the interest to be paid on the borrowed amount. When taking out a loan, most people escrow their property taxes and home insurance premiums with their lender. Escrow is a legal arrangement that allows a third-party to hold onto funds from one party before they are passed on to another party. In this case, your lender will hold onto the funds intended to pay your taxes and insurance and pay them when they come due. To ensure there is enough money to pay for taxes and insurance, the totals are divided by twelve to calculate what you owe monthly. That monthly amount is then added to your monthly principal and interest.

Ways You Can Save Money on Your Monthly Mortgage

Principal and Interest

This is the obvious place to start when looking to save money on your monthly payment. Shopping for a home based on what kind of monthly payment you can comfortably make can help you save and stay within your budget from the get-go. If your dream home is a little outside your preferred monthly payment, a larger downpayment can help reduce the amount of money you need to borrow. A bigger downpayment can also improve your interest rate, as lenders will see you as less of a financial risk.

As well, you can buy down your rate with any extra cash you may have or use seller concessions to buy down your rate to save on interest payments. If you’ve already purchased a home, making extra payments on your principal will help you to pay off your loan faster. This will also reduce the years and amount of money you spend towards interest payments.

Property Taxes

El Paso County property values are reassessed every two years. These assessments are based on the market activity within the area or neighborhood to adjust the value of property. This assessed value is what you pay taxes on. Some homes are in special taxing districts, while others may be subject to special tax exemptions (such as senior or military tax exemptions) that won’t carry over to the next owner. Since property tax is a component of your monthly payment, it’s best to research and understand the tax districts your potential new home is subject to. Shopping for homes in neighborhoods where the taxes fit your budget will help you reduce the overall cost of your monthly mortgage.

For current homeowner’s, keep an eye on your property taxes. You can contest your property tax amount with the El Paso County Assessor’s office. The County Assessor’s office will review recent home sales of similar properties to yours to assess your property value. Be aware, however, that if the county does not find evidence to support reducing their property value of your home, your taxes won’t be lowered.

Metro Districts

Metro districts are a type of special taxing district. Costs to build infrastructure of new subdivisions (roads, sidewalks, lights, sewers, water and utility lines, etc.) is passed to the homeowner by adding them to the purchase price. In today’s economy, this could make new homes in larger new subdivisions unaffordable. To offset that cost from the purchase price, metro districts can form and charge a specialized tax on the new homeowners to pay those fees and infrastructure costs over time. Once paid off, the metro district should be able to dissolve if that was its sole function.

You’ll find homes in metro districts have noticeably higher taxes. When home shopping, pay attention to whether properties of interest are in a metro or other special taxing district. Purchasing a home that is not part of a special taxing district can help you save on property taxes, and ultimately your monthly mortgage.

Homeowner’s Insurance

Your homeowner’s insurance premium is wrapped into your total monthly mortgage payment. So, shop around for homeowner’s insurance! Different providers offer different types of coverage at different rates. Be sure to understand the policies each insurance company offers, their costs, and your out-of-pocket costs should you need to make a claim.

Homeowner’s insurance is paid one full year in advance, typically collected at closing. There will be additional months’ worth of insurance payments collected at the same time to go into the escrow account. Make sure you know what those costs are and how they will affect your total closing costs.

You will notice your insurance premium increase over time. This occurs due to rising costs in the insurance world. However, you don’t need to stick with the same insurance company. If the premium cost is getting too much, shop for a different agency – but don’t sacrifice the coverage you need for the sake of lowering the cost; you might just need it one day. You may also be able to negotiate the premium with your current insurance company. If the fear they’ll lose you as a customer, they may just offer to lower it.

Live Dream Colorado Helps You Save

When you buy a home with us, we make sure you understand the costs associated with your home purchase. We refer lenders we trust to help you budget for your home purchase and we work closely with your lender so there are no surprises about your monthly payment. Reach out to learn more about how we work for you!