How to Save Money on Your Mortgage

Now more than ever, prospective home buyers are looking to cut costs and save money without cutting corners — or giving up on that cute little corner lot. It isn’t always easy. Not that home buying has ever been a particularly smooth and forgiving process. But with a tight credit market and concerns about when interest rates will rise, buyers are looking for ways to find and finance a home with as little pain as possible.

Photo woodleywonderworks via Flickr

An important step is to take, well, one step at a time. This is one of the most significant investments you’ll ever make, so hoping for some mad dash from start to finish can ultimately trigger major headaches for years and even decades to come.

There are a few paths to consider that can ultimately help you save money on your mortgage. Carving out a way to save just a handful of dollars every week or month on your mortgage can have a huge impact as your loan term runs its course.

Here are a few things to keep in mind when trying to save money on your mortgage:

Know Your Credit Profile

Credit and credit scores remain a mystery to far too many prospective homeowners. And that’s even scarier when you consider that about a quarter of all credit reports have errors and inaccuracies that can derail a home loan.

Having a good credit score will play a key role in your final interest rate. Go over your credit report with a fine tooth comb and be sure to contest any errors or mistakes you find. Allowing major ones to linger can lead to a higher rate and wind up costing you more money in the long run. Each of the three major credit bureaus have a process for disputing inaccurate information.

Loan Term

Really think about how much mortgage you can afford and strive to land the shortest mortgage term possible. You’re going to spend a ton of money on interest in the first decade or so of homeownership – it’ll take years for you to start paying down the principal. If you’re making solid money now and have the opportunity to opt for a 20- or 15-year term, seriously consider doing so. If you were to finance $80,000 with a 7-percent interest rate, getting a 20-year mortgage instead of a 30-year would save you more than $40,000.

Loan Type

There are a couple ways to get a loan without putting any money down, although they’re the exception for most buyers. Veterans, active duty service members and qualifying spouses who meet VA guidelines can obtain a loan backed by the Department of Veterans Affairs. Rural homebuyers (and even suburban ones) may also be able to qualify for a USDA loan, which also comes with no down payment or private mortgage insurance.

Otherwise, expect to come in with money down – at least 3.5 percent for an FHA loan and at least 20 percent for a conventional to avoid PMI. If you’ve already got a solid down payment, it may be best to avoid government-backed loans and go the conventional route to probably get a better rate.

But it’s a good idea to determine exactly what loan program(s) you qualify for. You can save a lot of money if you’re living in the right area or if you served our nation.

Make One Extra Mortgage Payment Per Year

This one might hurt in the short term but can do wonders later down the road. If you can scrape together the extra dollars, pay more on your mortgage each month. Just an extra $100 toward your principal every month can cut substantial money off your mortgage — about $20,000 on a 20-year mortgage with 7 percent interest and a $100,000 note. Be sure to make it clear that you want this additional payment to go solely toward the principal and not to reducing interest.

About the Author

By , on Apr 28, 2010
Chris Birk writes about government loans and the mortgage industry for several publications, including Mortgages Unzipped and VA Mortgage A former journalist and college professor, he also blogs at Write Short Live Long.

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Leave Your Comment (11 Comments)

  1. Michael says:

    Also, for a part of the agent’s commisison find an agent at that will give you part of their commisison and will represent your needs 100%

  2. joe says:

    it is really important to find suitable mortgage plan for yourself. there is no best plan in the market. Only the most suitable plan.

  3. Mike says:

    Great post – thanks so much for the link.

  4. Sid says:

    The best way to save money on your mortgage is to get the finest possible mortgage for yourself. But the point here is that you don’t need to do it the way every other person does. If you are eager to teach yourself how the mortgage world functions, you can put save a good amount by being a little different from others. But keep in mind that you are the best judge of what is good for you.

  5. Rick Munster says:

    Excellent post chock full of useful information for people before they get a loan.
    On a side note, and I am sure I am saying nothing new…I just found out that on some home loans, if you make on extra monthly payment within the first year you may be able to knock up to 7 years off of the life of the loan.

  6. Chris Birk says:

    @Carl: You’re definitely right about the need to keep a close eye on your FICO score. There are some simple steps people can take to boost their credit profile. We have a page with some great tips at

    @Stephan: I’m with Pinyo on this one, in that fixed rate is the preferred path.

  7. Pinyo says:

    @Carl — Good point about credit score

    @Stephan — Personally, I recommend fixed. Variable and interest only loans are what got a lot of homeowners in trouble this past years.

    @William — Excellent comment. I love your “trade down to wealth” strategy!

  8. William says:

    Excellent article. This is a favorite topic of mine. I think the best way to save a ton on a mortgage is to simply buy a less expensive home (I know, right? This is blasphemy talk.)

    There can be so many benefits of going with a slightly smaller, slightly older home in a good neighborhood.

    Going into a mortgage with no PMI and lower monthly payments will free up more capital to invest and live well on. Add to that lower taxes, lower heating/cooling costs and (sometimes) a less dictator-influenced HOA and you’ve taken away major points of stress many people are facing today who have simply bought too much house.

    I like to call this the “Trade down to wealth” strategy. Just because a banker/mortgage loan officer/your cousin say you can afford it does not necessarily make it so. “Afford” is in the eye of the mortgagor (i.e you alone).


  9. Stephan says:

    definitely a good post, with important information perfectly suited for someone like me (in his 20’s, looking to buy). However, the types of loan section was a little vague. How do you feel about variable rate, fixed rate, or an interest only loan?

  10. Carl says:

    What you also should check out is how your credit score is ranking and consider getting it fixed up. You can do this yourself or through a company on your behalf. This may sound obvious but there have been in many cases errors and issues with ones credit score they never knew. By getting them fixed people are saving hundreds of dollars per mortgage payment. It really adds up.

  11. kt says:

    i will keep these points in mind when i get a mortgage. I am still renting and at my age and financial status and the fact that i dont know where and when i want to settle means that it is not a good idea to get one now.

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