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Wednesday, August 15, 2018
    6 Strategies For Saving Money On Your Mortgage

    Now that I am the proud owner of a new mortgage of my rental property, I’ve been thinking about how quickly I can pay this loan off and reduce my mortgage costs. What I’ve realized is that paying off a large loan such as a mortgage can seem decades away, but if you apply a few strategies, not only can you pay your mortgage off faster, but you can save thousands of dollars in the process.

    I’m all about having this as simple as possible, so I looked for the easiest ways to get both of these tasks accomplished. Today I present you with six simple ways to reduce your mortgage costs. Let me know which one you might try.

    Shop Around For Mortgage Companies

    If you don’t have a mortgage and are in the market for a new house, this is the time that is pays to shop around and compare home loans. You’ll want to cluster mortgage pre-qualifications and loan applications around the same time so that your credit score does not suffer.  Just as you shouldn’t purchase the first house that you see, you shouldn’t accept that the bank that holds your checking or savings account will have the best offer. Sometimes the best deals can be found online or through small community banks. Check out bankrate.com (USA), moneysupermarket.com (UK) and iSelect (Australia) to compare some home loans. It is really easy to compare home loans using these services and should not take more than 10 minutes.

    Refinance Your Mortgage, Like Right Now

    I know that you’ve heard this one about a million times, but if you have a mortgage and are paying anything above a 4.5% interest rate, then you should begin shopping around for a new mortgage. Not only are mortgage rates historically low right now (hovering around 3.7% for a 30-year fixed rate mortgage and 2.95% for a 15 year mortgage), but you can also negotiate things such as points, fees and closing costs.

    Pay Your Mortgage Bi-Weekly

    You don’t have to have an official bi-weekly mortgage to save thousands of dollars in interest payments over the life of your loan. It basically works this way; instead of paying your mortgage once per month, pay half of your mortgage every two weeks.

    Once you add everything up, you will have made 26 payments or about 13 monthly payments per year and those extra monthly payments can add up to big savings over time. Here’s an example of how this could work:

    Original Loan Amount: $100,000
    Interest Rate: 4%
    Loan Term: 30 years
    One payment per month: $477.42
    Bi-weekly payment: $238.71

    You will pay $71,869.51 in interest and the loan will be paid off in 30 years under the original terms. If you paid the loan bi-weekly, you will pay $60,180.16 in interest and the loan will be paid off in 25 years. If you’d like to learn more about bi-weekly mortgages, check out my primer on that.

    Toss Small Extra Payments onto Your Mortgage

    Sort of the same as paying your mortgage bi-weekly, small additional payments can add up to huge savings over time. If we go back to our $100,000, 4% mortgage, if you pay an additional $20 per month the mortgage interest payment is reduced by $6,094.76 and the mortgage is paid off over 2 years earlier! All for an extra $20 per month.

    Sign Up For Automatic Deductions

    This is one strategy that I’m taking advantage of. The small community bank where I have my brand new mortgage for my rental property offered a 0.25% rate reduction if I opened a checking account with them and allowed them to automatically withdraw the mortgage amount each month. My response? Yes, please! I simply went back to my employer and filled out a direct deposit slip to send the mortgage amount to this new bank account and now I’m saving a whole quarter of a percentage point on my mortgage! Check to see if your bank offers this kind of saving.

    Get A Package Deal

    Have you walked into a major bank lately and been pounced upon as soon as you enter the door? Lenders want to offer you as many financial products as you can qualify for, so why not take advantage? Some banks are offering better rates and terms if you have different financial products or relationships with them. Perhaps you have a credit card, IRA, brokerage account or car note with a particular bank. See what the new bank will offer you with regards to your mortgage if you move another financial product over to the new bank. You have to be willing to port your old financial product to your new bank to take advantage of these kinds of deals.

    There are some additional ways to save money on your mortgage – some of which can get a little tricky or complicate, but just about everyone should be able to take advantage of the six ideas presented above. And don’t tell anyone, but these same strategies can work for other kinds of loans – like a loan for a new car.

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    This messy little blog was all my doing. I started this blog four years ago as a way of keeping myself accountable to my own debt reduction plans. Now I'm using this blog to help others get out of debt as well. Consider subscribing to get more delicious posts like this at least twice per week.

    21 Comments

    Sean @ One Smart Dollar September 27, 2012 at 2:49 pm

    I recently tried to refinance the mortgage on our rental property, but we were unable to. We lost a lot of equity over the past few years we are too close to flat for them to do anything for us.

      Sandy September 27, 2012 at 3:01 pm

      Man, that must hurt. The rates are just so good these days you get frustrated when you can’t refi! Hopefully you’ll dig out before rates go back up.

    Aloysa @ My Broken Coin September 27, 2012 at 9:54 pm

    I tried to refi my mortgage and I couldn’t. 🙁 The appraisal came back 10K lower than expected (it was quite a shock for us.) So here we are… with our 6% mortgage when we could have had 3.6%.

      Sandy September 27, 2012 at 10:03 pm

      I’ve been hearing that a lot lately. Totally not conventional, but could you borrow the 10K from a relative to qualify for the lower APR and then use the savings to repay the $10K?

    Brad September 28, 2012 at 7:37 am

    We just bought a home and the payment is rather high. I was thinking of doing a bi-monthly payment to begin with and after reading your article, I believe we will. Our loan is more in the $240,000 range with 3.75%. Hopefully paying bi-monthly will help ease the stress of having to spend so much money at the beginning of the month.

    We also just started a blog at passingthroughdebt.blogspot.com. This blog is dedicated to our journey to become debt free which we officially started on 8/28. We would love for you to follow us.

    Thank you for your advice!

      Sandy September 28, 2012 at 10:17 am

      Welcome to the blogging world and I’m glad that you learned something on my crazy blog.

      I crunched the numbers for you. I assumed you had a 30 year mortgage. Your current monthly payment should be around $1,111.48 now. You will pay $160,131.87 in interest over 30 years. If you split your payments to biweekly instead ($555.74) you will pay $135,125.11 in interest and cut your mortgage down to 26 years. Now, if you added an extra $20 to each biweekly payment, you could drop your total interest all the way down to $131,916.77 and shave another year off your loan. Amazing how small amounts can add up.

    Financial Samurai September 28, 2012 at 8:26 pm

    Everybody must refinance NOW! To not do so is silly, and leaving money on the table.

    You can borrow $1 million bucks for only $27,000 a year!

    Wayne @ Young Family Finance September 30, 2012 at 12:31 am

    It is really frustrating to be unable to refinance. We just cannot cover the closing costs. It kills me every time I see how low they are! Fortunately, we are only at 6% – not like it was in the 80s or anything – but it’s still a lot of money!

      Kacie October 2, 2012 at 11:04 pm

      Are you able to roll closing costs into the loan? Sometimes that’s an option, and helps if you don’t have the cash upfront. But shop it the heck around. My original lender wanted me to pay something like $1200 in closing costs.

      We ended up paying $250 in closing costs. No points. No BS. 2.875% and 15 years. yeah!

        Sandy October 2, 2012 at 11:36 pm

        Same here. My original lender **Wells Fargo** wanted $2,500 in closing costs. I politely hung up on the loan officer. Like you, I spent $250. Bump that! The only difference is that because it’s a non-owner occupied rental property, I pay a higher rate…current almost 5%. I’m cool with that.

    mbhunter October 1, 2012 at 2:35 am

    Great ideas! Though I wonder if the rate was that great at the bank if they can afford to knock 1/4% off just for automatic transfers? Seems like the rate they offered you would already have that built in.

    But in the end it’s better to have the automatic deduction, so you don’t forget. 🙂

    Kacie October 2, 2012 at 11:01 pm

    We refinanced last month to a 15-year at 2.875% and $250 closing costs. What the what.

    We bought our house a year ago and it appraised at our purchase price. Whew. I live in the Indianapolis metro.

    I *thought* there were federal programs in place to help people trying to re-fi? I haven’t looked into it, but if you are trying to refi and can’t, maybe that’s worth a look.

      Alex Aguilar October 6, 2012 at 11:48 am

      There definitely are federal programs to help refinance mortgages at a lower rate; you just have to actively seek them out. Get hold of an experienced real estate agent or financial adviser, they’ll be able to determine if you are eligible for any State or Federal programs to help homeowners in your area.

    Jamie October 3, 2012 at 5:52 pm

    Refinancing is a must. HARP is making it easier for people to refinance when they might not be able to refinance without the program.

    Chris from homeloanexperts.co.za October 8, 2012 at 2:33 am

    It takes work but shopping around is certainly the best way to get a good home mortgage deal. Finding a lender who offers the lowest possible interest rate, lending fees and closing costs can potentially save you thousands of dollars over the full term of your loan.

    Jason Vitug March 23, 2015 at 4:57 pm

    The biweekly is such a great way to pay down a mortgage. Just that one extra payment in the year can do wonders to lower the total cost of the mortgage.

    Pipera March 26, 2015 at 5:58 pm

    Automatic deductions look great but one has to dig really hard and really deep to get such an offer. The effort worth the money saved. All the others are very good ideas with refinance being the most accessible, right?

    diane @smartmoneysimplelife March 27, 2015 at 5:50 pm

    Making fortnightly mortgage payments really is the pain-free way to jump start repaying your principal. The other is making one off payments when you have some extra cash. Just make sure the bank knows its a principal payment and not prepaying interest!

    Unfortunately, lots of people wont have the option of refinancing their mortgage because they’re self employed or have low (or no) equity, etc. That makes paying down the principal as quickly as possible even more important.

    Marcel Rosa July 20, 2015 at 12:32 pm

    I believe the bi-weekly method works well, seeing the example and your convincingness [is that a word?]. It’s a pity that some people can’t refinance their mortgage, since the rates are really low now. The automatic deduction sounds awesome, you don’t have to worry about paying on time too.

      Sandy Smith July 23, 2015 at 2:00 am

      It’s a word if you make it one!

    Erick Brunet October 5, 2015 at 1:58 am

    Thank you for sharing the article. It’s very useful. Hope to hear more from you.

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