i) Pay Off Your Mortgage Loan Early

When you sign that 25 year fixed term mortgage, it will seem like it will take you forever to pay off your mortgage. However, this amortization term could be significantly reduced if you follow any of these tips:

- Pay a little extra every month towards the principal mortgage. For example if you pay an extra $200 per month towards your mortgage loan, that is a whopping $2400 a year! That will probably reduce your mortgage term by 2-3 years.

- Make one extra full payment every year. For example, if you are currently paying $1300 a month for your mortgage for 12 months of the year, try to pay $1300 a month for 13 months every year. This will reduce your mortgage term by atleast 3-4 years.

- If you have extra cash sitting in your home, spend it on value based home improvements or building more equity in to the house. Do not park the cash in a meagre 3% savings account. Spend the money on refurnishing your kitchen or bathrooms and increasing the value of your home.

ii) Pre-Payment Penalties

No matter what type of mortgage loan you borrow, be sure to inquire about any pre-payment penalties. Pre-payment penalties usually occur when you want to pay off the home faster than the lender allows it. For example, if you refinance your mortgage loan and pay off the older loan with higher interest rate, the lender might charge you a pre-payment penalty for doing so. You do NOT want that! This penalty could be a fixed amount of a percentage of the loan. Since it is a useless expense and a false cash trap, be sure to ask about this before you sign up for any mortgage loan.

iii) Know About Your Adjustible Rate Mortgage (ARM)

If you choose to take out an adjustible rate mortgage, be sure to answer the following questions:

1) When will your interest rate adjust the first time and by how much? Your interest rate could adjust within the first 1-2 years so be sure to know exactly when, and prepare for it!

2) You should know that Adjustible Rate Mortgages are tied to interest rates set by the Federal Reserve that fluctuate from one month to the next. Therefore, if you pay 6.5% interest this month, next month's interest could be 6.8%. This is because the interest rate is tied to a 10 Year US Treasury bill rate + 2-3 percentage points. Since the US Treasury Bill fluctuates from day to day, your interest rate could also do the same.

3) Know that ARMs can easily be refinanced into a fixed rate mortgage loan. Therefore if you are buying your house for the first time and your financial future is not secured, ARM is a good option. After 1-2 years of steady payments on your house, you could transfer to a fixed rate mortgage loan and not have to worry about the fluctuating interest rates.

iv) Talk to Reputable Mortgage Brokers

Finding a good home may seem to be the biggest problem in your real estate deals but actually finding the best source of financing is the most difficult task. It is best to talk to a reputable mortgage broker who will explain to you your mortgage options such as the amortization term of your mortgage, your monthly payment, any pre-payment penalties, best interest rate available and whether you should select a fixed or adjustible rate mortgage. After you talk to some mortgage brokers, search on the Internet for various lenders and compare their interest rates. You should do this for alteast 3-5 lenders. Then pick the best rate and go talk to that lender. Many mortgage lenders would be happy to beat their competition and lower their rates to match their competition. That's why we see slogans such as "When lenders compete, you win!" Make sure you win !!

v) Choosing the Right Mortgage Term

It is important to select the right mortgage term for your loan. While the monthly payment is important and most people want it to be as low as possible, other people want to pay off their mortgages as fast as they can. If you want to pay off your mortgage as fast as possible, select a shorter amortization term of 10 - 15 years. Although the monthly payment will be higher, you will be significantly reducing the amount of interest charges you pay and will be paying off your loan a lot faster than someone who amortizes it over 25 - 30 years.

vi) Want a Mortgage? Get Pre-Approved

Before you start looking for a home and make an approval, you need to get pre-approved by a lender. You will have to fill out a form that states everything financial about your life including the down payment you have, how much you owe on credit cards, student loans, auto loans, etc. The lender will examine your statements, check your credit report and approve or disapprove your application.

It is important to get pre-approved because most real estate agents will not show you any properties unless you have that letter. Getting a pre-approved letter will avoid all the hassle, lessen your closing costs and what's best, the process is free!
Note: Do not settle for a "Pre-Qualified" mortgage because that means nothing. You have to be pre-approved, not pre-qualified!

Click here to read a full article on Getting Pre-Approved for a Mortgage Loan.

vii) Do NOT Take Out Piggyback Loans

If you have a down payment of less than 20% on your home, you have to get Private Mortgage Insurance (PMI) that protects your lender from your defaults. This PMI could potentially add several hundred dollars to your monthly mortgage bill. To get your way around that, mortgage brokers often recommend two loans; a primary mortgage for 80% and a home equity loan for the remaining 20%. The home equity loan will serve as the 20% down payment clause and avoid you having to purchase PMI. This idea was sound when interest rates for home equity loans were like 5%, which matches to that of mortgage loans. However, interest rates on home equity loans now hover between 7% - 9%, which makes them a less popular deal. You would actually be better off buying PMI than taking out a home equity loan.