How to Save $10,000 (or more) Over the Lifetime of Your Mortgage

When it comes to buying property, homebuyers tend to focus on the short-term monthly payment - while the longterm savings are more of an afterthought.

It’s possible to take steps now that allow you to save thousands of dollars over the lifetime of the loan. That’s money you can put toward home renovations, college tuition, or even just taking a relaxing vacation. 

Here are four key ways you can reduce your overall debt and save.

Switch to a BiWeekly Payment Plan

Typically when you pay your mortgage, you pay in monthly installments. However, what you can opt to do is switch to a bi-weekly payment plan. So instead of paying once a month, you pay every two weeks. 

The result is that you’ll end up paying an extra monthly payment each year. Since there’s 52 weeks, you'll make 26 payments - equal to 13 monthly payments. 

Paying more into your mortgage can mean paying off your balance sooner, and accruing less interest over time (since the remaining borrowed balance will continue to be lower).

Of course, this means you’ll be paying a bit extra every month in order to make it happen - but since the payments will probably correspond to your paycheck, it’s a relatively painless change for some.

Not every lender will allow a switch to a bi-monthly payment plan, but most major lenders now offer this option.

Keep in mind that this is something you should specifically ask your lender about before putting into action. What you don’t want is for the lender to simply hold on to it and then send it in a lump sum at the end of the year. You want to work with a company that makes extra payments to your mortgage each time. 

Should I make extra mortgage payments?

In the same line of thinking, you can make smaller extra payments to your mortgage every month. According to Chase's online mortgage calculator:

Putting an extra $100 every month into paying off a $500,000 30-year loan with a 4.5% interest rate will eventually save $36,241 over the lifetime of the loan.

Buy Down Your Mortgage Rate

Homebuyers can opt to buy down their mortgage rate at closing. 

Rather than putting all your available savings toward your down payment, find out what the total payments would look like if you buy down your rate. Since either a down payment or a rate buydown would lower the overall amount of interest you owe, you’ll need to run the math on your specific numbers.

Points are not the same as rate percentages, so 1 mortgage point does not equal 1% off your rate.

Instead, each mortgage point will typically cost 1% of the loan amount, and will lower your rate by .25% (this number will vary depending on the lending market).

Using Bankrate’s mortgage calculator, let’s walk through an example.

Say you plan on buying a $500,000 house with 10% down, meaning your loan amount would be $450,000.

If you decided to buy two mortgage points, they would cost 2% of the loan amount, or $9,000, and your mortgage rate would go from approximately 4.36% to 3.86% (since you reduced the rate by .5%)

• With the buy-down, you’d pay $310,461 in interest, for a total cost of $760,461
• Without the buy-down you’d pay $357,715 in interest, for a total cost of $807,715

So: buying two mortgage points upfront would net you $38,254 over the length of your loan (compared to keeping the $9,000).

Conversely, let’s say you put the $9,000 into the down payment instead, and kept the higher mortgage rate. In this scenario, you’d pay $350,622 in interest, for a total loan amount of $791,622. 

Overall you’d net $16,093 over the length of the loan (compared to keeping the $9,000).

In other words, if you plan to keep the home for the entirety of the 30 year loan, you’ll save $16,093 more by buying down the rate (instead of adding the money to your down payment).

Increase Your Downpayment

As indicated above, you can also increase the size of your down payment if you have the cash to do so. For the same $500,000 home and an interest rate of 6.5%, 

• 20% downpayment ($100,000)= $510,381 total interest
• 15% downpayment ($75,000) = $542,280 total interest
• 10% downpayment ($50,000) = $574,179 total interest

In this case, putting down 20% instead of 10% saves you $63,800 over the lifetime of your loan.

It’s worth keeping in mind that there’s a reason many people opt to put down a smaller down payment rather than save up to 20%. While $63,800 is substantial, home value appreciation will reduce your profit.

If it takes you an extra year to save up to 20% instead of just putting down 10%, the average $500,000 home appreciates 4% - so it will now be worth $520,000. 

In other words, if you plan on staying in your home for the entire 30 years, waiting to save the additional 10% comes with a cost. You’ll spend some of that money you save on interest in the form of a higher price tag and continuing to pay rent.

Want to talk to a mortgage advisor about whether this option is right for you?

Start here

Refinance Your Loan

If you want to save money over the length of your loan, refinancing is one of the tried and true methods to do so. 

When you get your original home loan, it has a fixed rate (unless you opted for an adjustable rate mortgage, or ARM). With a fixed rate loan, even if the borrowing rate drops several points, you’re still locked in - unless you refinance.

With refinancing, if at some point in the future the mortgage rate drops significantly, you can get that rate for your own mortgage.

There is a cost to refinancing. Mortgage origination fees amount to .5% to 1.5% of the loan principal, along with an application fee (up to $500). So if you have $300,000 left on your loan, you’d pay anywhere from $1,500 - $4,500 in origination fees. 

The cost can be worth it, though, if the rate is low enough - and sometimes you can get a lower rate simply by refinancing to a different loan term. The difference between a 15-year term and a 30-year term mortgage rate is usually a bit over .5%. 

If your home has 20 years left on the mortgage and a remaining balance of $300,000, and you switch from an interest rate of 6.5% to an interest rate of 4.5% on a 20 year loan, you ultimately save $75,500 over the lifetime of your loan. In this case, it’s definitely worth it to pay the fees - they’re only a small fraction of what you get to save overall!

“Refinancing is a relatively easy process, and with so much financial uncertainty in the world today, no one should have to wait months to get their mortgage refinanced – or to find out if they could,” said Casey Hansen, our Director of Lending. “It’s definitely worth reaching out to see if you qualify.”

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