Mortgage Tips: How to Save Thousands on Your Home Loan
Published January 15, 2025
A mortgage is likely the largest financial commitment you'll ever make. Over a 30-year term, you can pay nearly as much in interest as the home itself costs. But with a few informed decisions — some made before you even apply — you can dramatically reduce your monthly payment and the total interest you pay over the life of the loan.
Use our mortgage calculator to follow along with your own numbers as you read.
1. Improve Your Credit Score Before Applying
Your credit score is the single biggest factor in determining your mortgage interest rate. The difference between a "good" score (around 700) and an "excellent" score (760+) can translate to 0.5% or more on your rate — which over 30 years could mean tens of thousands of dollars.
Before applying, take these steps:
- Check your credit report for errors and dispute any inaccuracies.
- Pay down credit card balances to reduce your credit utilization ratio (aim for under 30%, ideally under 10%).
- Avoid opening new credit accounts in the 6–12 months before applying.
- Make every payment on time — payment history is 35% of your FICO score.
2. Save a Larger Down Payment
A 20% down payment eliminates the need for private mortgage insurance (PMI), which typically costs 0.3%–1.5% of the loan amount per year. On a $300,000 loan, that's $900–$4,500 annually — money that goes straight to the insurer, not your equity.
Even if 20% isn't realistic, every additional dollar you put down reduces your loan amount, which means less interest paid over time. Use our affordability calculator to see how different down payment amounts affect your monthly payment.
3. Choose the Right Loan Term
The standard choice is between a 15-year and a 30-year fixed-rate mortgage. The tradeoff is clear:
- 30-year: Lower monthly payment, but you pay roughly twice as much total interest.
- 15-year: Higher monthly payment, but significantly less interest and you own your home in half the time.
On a $300,000 loan at current rates, a 30-year term at 6.5% costs about $348,000 in interest over the life of the loan. A 15-year term at 5.5% costs about $142,000. That's a $200,000+ difference.
Can't afford the 15-year payment? Choose the 30-year and make extra payments when you can. Even one extra payment per year on a 30-year mortgage can cut 4–5 years off the term.
4. Make Biweekly Payments
Instead of making 12 monthly payments, make 26 biweekly payments (half your monthly payment every two weeks). Because there are 52 weeks in a year, this results in 13 full payments instead of 12 — one extra payment annually, applied entirely to principal.
On a 30-year mortgage, this alone can shave 5–6 years off the term and save tens of thousands in interest. It's one of the easiest strategies because the payment amount feels similar to your normal monthly budget.
Check with your lender first — some charge fees for biweekly payment programs. If so, you can achieve the same result by adding 1/12th of your monthly payment to each monthly payment.
5. Refinance When Rates Drop
If interest rates fall significantly below what you're currently paying, refinancing can lower your monthly payment, reduce your total interest, or both. The general rule of thumb is that refinancing makes sense if you can reduce your rate by at least 0.75%–1% and you plan to stay in the home long enough to recoup the closing costs.
Closing costs typically run 2%–5% of the loan amount. Calculate the break-even point: divide the closing costs by your monthly savings to find how many months you need to stay in the home for the refinance to pay off.
6. Don't Forget About Property Taxes and Insurance
Your monthly mortgage payment is more than just principal and interest. Most lenders escrow property taxes and homeowners insurance, rolling them into your monthly payment. When budgeting, use the PITI (Principal, Interest, Taxes, Insurance) total, not just the loan payment.
Property taxes vary enormously by location — from 0.3% of home value in some states to over 2% in others. A $400,000 home could mean $1,200/year in taxes in one area and $8,000/year in another. Research property tax rates before choosing where to buy.
7. Shop Multiple Lenders
Interest rates and fees vary between lenders, sometimes by a full half-percent or more. Get Loan Estimates from at least three lenders — a bank, a credit union, and a mortgage broker — and compare them side by side. Look at the APR, not just the interest rate, because the APR includes lender fees and gives a more accurate picture of the true cost.
Getting multiple quotes within a 14-day window counts as a single inquiry on your credit report, so there's no penalty for shopping around.
8. Avoid PMI If Possible
If you can't reach 20% down, ask about lender-paid mortgage insurance (LPMI) or piggyback loans (an 80/10/10 structure). These alternatives can sometimes be cheaper than traditional borrower-paid PMI, depending on your rate and how long you expect to hold the loan.
Once your loan-to-value ratio reaches 80%, you can request PMI cancellation. The lender is required to automatically cancel it at 78% LTV, but being proactive can save you months of unnecessary payments.
9. Round Up Your Payments
If your monthly payment is $1,847, round up to $1,900. That extra $53 goes directly to principal, reducing the loan balance faster and shortening the term. It's a painless way to build equity and cut interest costs without feeling a budget impact.
10. Don't Overextend Your Budget
Just because a lender approves you for a certain amount doesn't mean you should borrow it. The old rule was that your housing payment shouldn't exceed 28% of your gross monthly income, and total debt shouldn't exceed 36% (the 28/36 rule). These guidelines exist for a reason — stretching beyond them leaves you vulnerable to financial stress if income drops or expenses rise.
Use our home affordability calculator to find a comfortable price range before you start house hunting.
Put It Into Practice
Ready to run the numbers? Use our mortgage calculator to estimate your monthly payment, or our loan calculator for other types of loans. Small decisions — a slightly larger down payment, a shorter term, a few extra dollars per month — compound into massive savings over the life of a mortgage.