updated 6/17/2005 7:16:10 PM ET 2005-06-17T23:16:10

There are a few ways you might be able to save money on the next mortgage you secure.

For starters, you might "assume" the existing mortgage on the house you're buying, if there is one. This is a good deal if the existing mortgage is at a lower rate than prevailing interest rates. To do this, you'll need to make sure the existing mortgage is "assumable" or transferable. And you'll have to cough up whatever difference there is between the purchase price and the outstanding debt. You might do this by tapping your nest egg, if it's large enough, or by taking out a second mortgage.

Another strategy is "seller financing." Here, you make your monthly payments to the seller, not to an institutional lender. The advantage is that you can often arrange a lower interest rate — especially if the seller has had trouble selling — and you avoid the many costly administrative fees involved with institutions. (If the seller has had trouble selling, though, find out why!) In addition, you avoid private mortgage insurance.

Why would a seller take on this kind of risk? It's actually not that risky. The house is the collateral. Default on the loan, and the seller keeps the house — just like a bank would. Sellers might also appreciate getting regular checks from you over time, rather than a lump-sum payment — it'll be an additional income stream. And, depending on the seller's circumstances, this arrangement might also save him some capital gains tax. One caveat is that sellers typically will want a shorter term than the traditional 30-year mortgage.

Play with points
You might also save some money by playing with points and other elements of the mortgage. Maybe pay more discount points and get a valuable lower rate. Perhaps consider a 15-year mortgage instead of a 30-year one. (Of course, if you'd rather pay less each month with a 30-year mortgage and invest the rest in something like stocks, it could be better than a shorter-term mortgage — especially if your interest rate is low.)

It's also effective to pay off your mortgage sooner than you're scheduled to. The more you pay, the less you owe. And the less you owe, the less interest you'll pay.

Finally, remember that mortgage lenders want your business and will usually compete to get it. Don't be afraid to negotiate. Let one know what another is offering you. Don't assume that published rates are final. If your credit record is good, you'll be in a particularly strong position to negotiate. Knocking a quarter percent off a published interest rate is a reasonable goal.


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