Want to save thousands on your mortgage? Here’s how you can make a big difference with small changes:
- Refinance Your Loan: Lower your interest rate by 1% and save over $3,200 annually on a $400,000 loan.
- Switch to Biweekly Payments: Make 26 half-payments a year to cut down interest and shorten your loan term by years.
- Cancel PMI: If you have 20% equity, remove Private Mortgage Insurance and reduce your monthly costs.
- Pay Extra Toward Principal: Adding just $100/month can save you over $40,000 in interest on a $400,000 loan.
- Negotiate Fees: Lower closing costs like loan origination or processing fees to save upfront.
Simple adjustments like these can save you tens of thousands over the life of your mortgage. Start today by reviewing your loan terms and contacting your lender.
Secrets to Saving Big on Your Mortgage Payment! | Reducing …
Lower Your Rate Through Refinancing
Reducing your mortgage rate by just 1% on a $400,000 loan – from 7.5% to 6.5% – could save you around $269 per month. That’s more than $3,200 a year in savings [3].
Compare Current Market Rates
Before refinancing, weigh the potential savings against the costs. Here are some examples:
| Loan Amount | Rate Drop | Monthly Savings | Time to Recoup Costs |
|---|---|---|---|
| $400,000 | 1% (7.5% to 6.5%) | $269 | 2.5 years |
| $400,000 | 0.5% (7% to 6.5%) | $133 | 5 years |
| $300,000 | 1% (7.25% to 6.25%) | $199 | 3 years |
"Determining whether the total costs to refinance make sense heavily depends on how long you plan to keep the loan" [3].
Refinancing typically costs between 2% and 5% of the loan amount, so ensure you’ll stay in the home long enough to recover those costs [3].
Start Your Refinance Application
Ready to lock in a lower rate? Gather these documents to get started:
- Recent pay stubs (covering the past 30 days)
- Two years of W-2s
- The last two months of bank statements
- Your most recent mortgage statement [4]
If you’re self-employed, you’ll also need your last two years of tax returns and a current profit/loss statement [4]. Submitting a complete application helps avoid delays.
"If refinance rates are declining, it may pay to wait to maximize the difference between your current rate and the new rate. But when lower refinance rates begin to rise, it’s probably a good idea to pull the trigger." [3]
Switch to Biweekly Payments
Switching to biweekly mortgage payments can help you save money and pay off your loan faster. By making 26 half-payments a year (equal to 13 full payments), you reduce your loan’s principal more quickly and cut down on interest costs.
How Biweekly Payments Work
Here’s a breakdown of how biweekly payments compare to traditional monthly payments:
| Interest Rate | Monthly Payment | Biweekly Payment | Total Interest Savings | Years Saved |
|---|---|---|---|---|
| 5% | $2,147.29 | $1,073.64 | $69,448.03 | 4.75 |
| 6.5% | $2,528.27 | $1,264.14 | $121,000+ | 4.25 |
| 7% | $2,661.00 | $1,330.50 | $139,931.00 | 4.50 |
"A biweekly payment plan is far more effective than merely sending one additional payment per year… Your loan balance accrues interest every day and reducing that principal balance every 14 days saves more in interest charges than one full additional payment every 12 months, even though the total amount in payments every year remains the same."
– Michael Hausam, Realtor and Mortgage Broker [5]
"I pay biweekly because more money goes directly toward the principal rather than the interest… The payment on the first of the month goes more towards interest, but the payment on the 15th shifts and more money is put towards the mortgage loan principal."
– Lisa Orban, Author and Homeowner [5]
These real-world examples highlight how biweekly payments can reduce your interest costs and shorten your loan term.
Set Up Your Payment Schedule
Here’s how you can switch to a biweekly payment plan:
- Contact your lender: Confirm if they allow biweekly payments.
- Ask about how payments are applied: Ensure partial payments are credited immediately.
- Check for fees: Some lenders charge setup or transaction fees for biweekly plans.
- Review prepayment penalties: Make sure there are no penalties that might reduce your savings.
"Biweekly mortgage payments can help you save money on interest and build equity in your home more quickly."
– Sarah Sprague Gerber, CFP® professional and founder of Momentum Financial Planning [6]
If your lender doesn’t offer a biweekly payment option, you can still achieve the same results by manually splitting your monthly payment in half and paying every two weeks. Just ensure these payments are applied directly to your principal balance [6].
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Cancel Your PMI
PMI can significantly increase your monthly mortgage payment. Once you have enough equity in your home, canceling it can reduce your costs.
Check Your PMI Status
To see if you qualify to cancel PMI, compare your loan balance to your home’s original purchase price (or the lower appraised value). If your balance is 80% or less of the original value, you’ve reached 20% equity. For instance, on a $400,000 home, your loan balance needs to drop to $320,000 or less. If your home’s market value has gone up, some lenders might use the current value to cancel PMI earlier than expected.
Under the federal Homeowners Protection Act of 1998, PMI is automatically canceled when your equity hits 22% [7].
Submit Your PMI Removal Request
Once you confirm your eligibility, take the following steps to formally cancel PMI:
- Contact your loan servicer to get their PMI cancellation form.
- Submit a written request for removal, as required by law.
- Provide proof of your home’s value, which might require a new appraisal costing $300–$500.
- Check your payment history to ensure it’s in good standing. Late payments or having a second mortgage could disqualify you.
Here’s a quick summary of typical requirements:
| Requirement | Details |
|---|---|
| Minimum Equity | 20% based on original or possibly current value |
| Payment History | Must be current, with no late payments |
| Second Mortgages | Usually not allowed for early PMI removal |
| Home Value | May require a new appraisal ($300–$500) |
Meeting these conditions can speed up the process and help you save money sooner. While an appraisal may cost upfront, it could lead to long-term savings by eliminating PMI faster.
Reduce Your Loan Fees
Lowering your mortgage fees can help cut down your overall costs. Many lenders include charges that you might be able to reduce or even remove with the right approach.
Spot Fees You Can Negotiate
Check the second page of your Loan Estimate document. This breaks down your closing costs into Sections A, B, and C. While Sections A and B usually include standard charges, Section C often lists fees that you can negotiate [10].
Here’s a quick comparison of negotiable and fixed fees:
| Negotiable Fees | Typical Range | Non-Negotiable Fees |
|---|---|---|
| Loan origination fee | 0.5% – 1.0% of loan | Property taxes |
| Processing fee | $0 – $800 | Credit report fee |
| Settlement fee | $0 – $600 | Government recording fees |
| Rate lock fee | $250 – $900 | Appraisal fee |
| Title insurance | Varies by state | Transfer taxes |
Steps to Lower Fees
Here’s how you can negotiate:
- Compare multiple offers: Get Loan Estimates from at least three lenders to identify competitive fees.
- Ask for fee matching: Show your preferred lender competing offers and request a match on lower fees.
- Use bundled services: Some lenders offer discounts if you use their affiliated service providers.
"Borrowers simply need to ask if there’s any chance of a discount. If a lender can be convinced that an applicant is eager to sign on, they might be willing to modify the terms of the loan to sweeten the deal." – Rachel Scott, New American Funding [10]
Another tip: Schedule your closing at the end of the month to reduce prepaid interest charges. Some basic home loans waive application fees, potentially saving you $180–$395 annually [8].
Pay special attention to the loan origination fee, which typically ranges from 0.5% to 1.0% of the loan amount [9]. For example, on a $400,000 mortgage, cutting this fee by just half a percentage point could save you around $2,000.
Once you’ve secured savings on fees, you can focus on reducing your principal payments in the next step.
Pay Extra Toward Principal
Adding extra payments to your mortgage principal can help you save a lot on interest and shorten the length of your loan. Even small, consistent contributions can make a big difference over time.
Use Extra Money Wisely
One of the smartest ways to tackle your mortgage faster is by directing extra funds toward the principal. For example, if you have a $500,000 mortgage, adding just $100 to your monthly payment could save you over $40,000 in interest and reduce your loan term by about two years [2]. Tax refunds, work bonuses, or other surplus cash are great options to put toward your principal. However, always check with your lender to ensure extra payments are allowed and correctly applied.
See Your Savings Results
Let’s break it down: adding $100 as a lump sum payment each month on a $650,000 loan can significantly cut your interest expenses and shorten your loan term [2].
To make the most of this strategy, here’s what you should do:
- Specify the payment purpose: Make sure your lender knows the extra funds are for the principal.
- Double-check the application: Use your online account to confirm the payment was applied correctly.
- Track your progress: Regularly review your loan balance and updated payoff date.
Before diving in, check your mortgage terms for any prepayment penalties. Some loans charge fees for early payoff, which could eat into your savings [11].
"Most fixed rate home loans usually have a limit of around $10,000 on the amount of additional repayments you can make during the fixed rate period. If you go over this limit or want to switch to a variable rate, you’ll likely have to pay expensive break fees." – Home Loan Experts [1]
Another helpful tool is a redraw facility. This feature lets you make extra payments while still giving you access to those funds if needed. The unused funds reduce your interest since charges are based on the remaining balance [2].
Next Steps
Start saving on your mortgage with a plan tailored to your financial situation.
For example, refinancing can be a smart move for homeowners with stable income. Even a 0.5% rate reduction on a $500,000 mortgage could save you over $150 each month [2].
Here’s how to get started:
-
Review Your Mortgage Details
Look at your latest mortgage statement to find out your interest rate, loan balance, monthly payment, and whether you’re paying for private mortgage insurance (PMI). -
Pick the Best Option for You
Focus on the approach that offers the quickest savings:- Refinance if you can secure a rate that’s at least 0.5% lower.
- Switch to biweekly payments to reduce interest over time.
- Ask for PMI removal if your loan-to-value ratio is 80% or lower.
- Pay extra toward your principal whenever possible.
-
Take Action Now
Reach out to your lender to:- Confirm your current payoff amount.
- Check if there are any prepayment penalties.
- Learn the steps required for your chosen strategy.
- Set up any new payment arrangements.
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