How I Saved Thousands on My Mortgage

When you're preparing to buy a home, the expenses can start to mount quickly. With the price of the house, closing costs, inspection costs, and all the rest, any way you can save a dime can be helpful. And while saving money on your mortgage might not be the first thing that comes to mind during the lengthy and at times arduous approval process, it can make a huge impact upon the amount of money you spend on your home over the course of your loan.

I was surprised at the ways I found to save money when I obtained my mortgage and wanted to share my experience so that others might do the same.

Selecting a 15-Year Mortgage

The first, and in my mind, the most important way I found to save on my mortgage was by selecting a 15-year versus a 30-year fixed mortgage. By cutting the payoff time for my mortgage in half, I reduced the amount of interest I would pay over time to a bank for my home loan by more than half as well. This was a huge savings, and while it pushed my mortgage payments higher, I understood that over the long haul it would be well worth the short term sacrifices I would have to make.

Watching Rates

Timing interest rates, like timing the stock or real estate market, is hard to do. Even my mortgage broker told me she had no idea whether rates would be going higher or lower at the time that I was considering locking in my loan.

Having a general understanding of what interest rates are doing though, whether they are higher or lower in comparison to where they have recently been, and their general tendencies -- whether they have been heading higher or lower lately -- can help you save money on your loan and can actually make a significant difference in the overall amount of money you pay on your loan. A single percentage point higher or lower on your mortgage rate could equate to thousands or even tens of thousands of dollars over the course of your mortgage.

Automated Bill Pay Discount

The particular bank we chose for our mortgage offered a slight discount for signing up for their automated bill pay system. This discount was half a percentage point, which can add up in cash terms quite a bit over the course of a loan. Since we already did our banking and held our accounts through this particular bank, it made little difference to us if the monthly mortgage payment was taken directly from our checking account, and the discount was a pleasant addition to our loan process.

Escrowing Taxes and Insurance

Initially I wanted to pay our property taxes and insurance myself since I could leave the money in the bank accruing interest (this was at a time when you could still get a couple percent for the money in your savings account). However, doing so would have added a penalty to the tune of one point to our mortgage. It certainly wasn't worth it to me, and I'm even happier now that I didn't do this as I currently earn almost nothing on our savings. It's kind of a nice convenience too, having the bank deal with taking money out each month for our escrow account and handle the property tax and insurance payments. Just two less things I have to deal with twice a year.

One Mistake

Not everything worked out perfectly when it came to our mortgage though. Several months after moving into our new home, I received a letter in the mail from our bank regarding bi-weekly mortgage payments. At the time, I knew little about the subject, and seeing that the letter explained that such a payment system could reduce the interest paid on our mortgage over time, I signed up.

As I later found out, it wasn't the best move for our particular situation. All the bi-weekly payments really did was add the equivalent of an extra monthly payment to our mortgage each year (going directly to principal), something I could easily have done myself online in about 30 seconds. The payment system ended up costing us an application fee of almost $300 and a $1 transaction fee for each bi-weekly payment. It was a bad decision on my part but a valuable learning experience.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is at the reader's discretion.