3 Ways You Can Reduce Your Mortgage Costs

Few people will ever pay more for anything than they do for their home. The prices of housing are continually increasing; the median price of a house in the United States is now more than $225,000 (median price of a home during the 1960s was $97,000, when adjusted for inflation). Adding to the expense is the mortgage interest. Over the life of the loan, most homeowners will pay approximately twice the cost of the house in interest alone.

Taking interest into account, the cost of the average American house now costs more than $550,000. But while everyone wants to own a house, few people relish the thought of paying almost half of the mortgage amount borrowed as interest to their lender. Over the life of a $200,000, 30-year mortgage at 5 percent, you'll pay 360 monthly payments of $1,073.64 each, totaling $386,511.57. In other words, you'll pay $186,511.57 in interest to borrow $200,000.

Here are some things that you can do that may help reduce the total cost of buying a home:

1) Eliminate your private mortgage insurance (PMI)

If you are making a down payment of less than 20%, your lender will require that you pay private mortgage insurance every month. This protects the lender against default, but it doesn't help you one bit. If the value of your house increases or if you pay down a portion of your mortgage, your equity may exceed 20% of the home's value. In that case, you can ask your lender to drop the PMI. The lender won't automatically do it; you must ask. You will also need to submit the results of a formal appraisal to prove the home's value. Should your lender drop your PMI, you can simply add the amount you were paying to your mortgage payment each month. The extra sum will help reduce your interest costs and will help you pay off your loan sooner.

2) Add to your payment

You can pay more than the listed amount each month. Any extra you add to your payment should be applied to your loan principal, which will contribute to paying off your loan sooner. Every little bit helps; even $100 per month would probably save thousands of dollars over the life of the mortgage.

3) Refinance your loan

If interest rates take a drop to one or two points below the interest rate on your loan, it would probably be worthwhile to refinance. The costs of refinancing can usually be recovered through lower payments within a few years. Depending on the interest rate and the size of your loan, you could save tens of thousands of dollars over the life of your mortgage.

These are but a few of the ways that you can reduce the cost of buying a home. While there isn't much you can do about the price of the house itself, you can certainly do a number of things to reduce the amount that you pay in interest over the years. Every penny counts.

Make lenders compete
to get a low rate

Answer few questions and compare rates from multiple lenders

Compare Rates

Assurance (NMLS #1912050) is not a lender. The lenders determine whether you will be approved and the rate you will be offered. There is no guarantee that you will be approved for credit or that you will qualify for the advertised rates, fees or terms shown. The lenders’ credit decisions may vary based upon your loan request, your particular financial situation and other criteria determined by the lenders. All rates, fees and terms are not guaranteed and may change.

Annual Percentage Rate (APR) calculation and fees are as of 2021-04-11 based on information previously provided by you, the customer, including refinance period, credit score, state, mortgage balance, and property value.

The offers that appear on this site are from third party advertisers from which the operator of this site receives compensation. This compensation determines which offers appear on this site and the order in which they appear. The order is determined at our own discretion and should not be considered an endorsement of any specific offer. We strive to provide a wide array of offers, but the offers shown do not represent all financial services companies or products. The information and vendors which appear on this site are subject to change at any time.

The operator of this website, Assurance IQ, LLC, is a wholly owned subsidiary of Prudential Financial, Inc.

Rate of 1.875%, Annual Percentage Rate (APR) of 1.928% and $1295 fees are for a 15 year fixed refinance loan available through Farmers Bank & Trust (NMLS#613839) based on Excellent Credit Score, Townhouse, Primary Residence, in the state of TX, with an anticipated mortgage balance of $490,000, and property value of $600,000 as of 12/04/2020.

This site is protected by reCAPTCHA and the Google  Privacy Policy and Terms of Service apply.