How To Save Money On Your Mortgage

Updated: Feb 19

Your mortgage payment is most likely your largest monthly expense. But there are ways you can decrease your monthly payment and pay off your loan faster.

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Let’s walk through these tips using this mortgage scenario as an example:

  • $200,000 mortgage

  • 30-year fixed-rate mortgage

  • 6% interest rate

  • $1,199 monthly principal and interest payment

  • Savings will vary based on your actual loan facts and the timing of the change

1. Fight Your Property Assessment

Property taxes can be thousands of dollars a year. If you think your home’s value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes.

Savings: This can vary. It is dependant on your tax rate and home adjustment, but this could be hundreds of dollars a year.

2. Create Bi-Weekly Payments

Another way to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half-payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you.

Savings: Using the sample scenario, that's $47,000. That's the same as extra payment.

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3. Make an Extra Payment Each Year

If you have the means, the easiest way to save money on your mortgage is by making an extra mortgage payment each year. These extra payments are automatically applied to your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term.

Savings: In the sample scenario, by making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan.

4. Recast Your Mortgage

Some lenders are willing to recast (reset) your monthly payment when you make large payments toward the principal of your mortgage. Usually, when you put money toward your balance, your monthly payment stays the same but the term of your loan shortens. When the loan is recast, your monthly principal and interest are recalculated so you end up with a lower monthly payment over the existing term of the loan.

Savings: In the example scenario, that's $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month.

5. Loan Modification

If you are late on your payments and are going through a financial hardship, you may be eligible to modify the terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of program, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site.

Savings: This can vary. It can reduce your interest rate to as low as 2%, extend your term to 40 years, or reduce your principal.

6. Refinance Your Mortgage

The most common way to save money is by refinancing your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. You should seek professional advice before you do this, as this can do you more harm than good if you do not fully understand your current finances. Having said that, with rates at historic lows, if you can refinance, and you haven’t already, you should.

Savings: In our sample scenario you would be saving $126 per month. By lowering your interest rate to 5%, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months.

7. Cut your PMI

Many people are forced to pay private mortgage insurance (PMI) because their down payment is less than 20%. If you are in this boat, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80% of the home’s appraised value. This can happen if your home’s value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment.

Savings: In the sample scenario you would be saving $130 per month. If you only put down 5% and had a PMI rate of 0.78%, you could save $130 per month.

Many people struggle with the time, financial obstacles, and all kinds of realty advice when it comes to buying or selling a home. At clubhouse group, we work tirelessly to make the process seamless, and the experience enjoyable. So you can focus on what’s important to you. Creating new memories and traditions with those you love, in the home that you love. It’s what every person deserves... and frankly, it’s what you deserve.

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If you are thinking about buying or selling your next home and need guidance, give us a Call Today! It's important for you to get the most out of your investment. We want to help you get out on top.

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