4 Ways To Cut Costs On Your Mortgage (& Invest Your Money Instead)

Are you searching for ways to cut costs on your mortgage? With mortgages eating up a bulk of their incomes, millions of Americans are left with very little breathing room for other investments or financial commitments.

As a result, most of them will likely go into retirement with little-to-no savings, apart from an old and creaky house that they can neither sell, nor rent out, without having to move elsewhere themselves.

There are, however, ways to cut costs on your mortgage or reduce your monthly payables in order to get sufficient space in your budget for various savings, investments, and long-term financial planning. 

This, of course, is a double-edged sword, which can either substantially enhance your financial position, or be further detrimental, depending on the investments you choose, and approaches you plan.

1. Buy Mortgage Points

A great way to generate massive savings, in the long run, is by buying mortgage points at the time of closing on a house.

Each point is equal to 1% in interest and requires a certain payment upfront, but by reducing your overall interest in this regard, your monthly payables, and total interest paid can be substantially lower, especially over 25 to 30-year mortgage periods.

The cost of each point and the time it takes to recoup the same in savings must be given due consideration, but most of the time, if you have the money, it is worth going for this option.

2. Save Money On Mortgage Insurance

Most FHA loans taken after 2013 require borrowers to pay a monthly mortgage insurance premium (MIP) for at least the first 11 years.

This mostly comes down to the amount of equity you have in your home, for example, if you have paid at least 10% as a down payment, the MIP is required for 11 years, but if you’ve paid less than 10% down, an MIP is required throughout the lifetime of the loan.

If you’re stuck with the latter, you can always refinance to a conventional loan once you have at least 20% equity in the house, at which point you will no longer have to pay any mortgage insurance premiums on a monthly basis.

A MIP can range from anywhere between 0.5% to 2% of your total outstanding balance each year, which is a considerable amount that doesn’t add any value.

3. Refinance Your Mortgage At A Lower Interest Rate

Often the most sought-after measure for significantly lowering your monthly payables, refinancing at a lower interest rate can be incredibly beneficial during periods of below-average rates.

Over the past two years, when rates hit rock bottom, homeowners took advantage of the fall, with refinances reaching as high as $2.6 trillion during 2021 alone.

Even reducing the interest rates by as much as 0.50% to 1% can mean substantial savings, for example, on a $400,000 30-year fixed-rate mortgage, a 1% lower interest rate results in monthly savings to the tune of $274.

A not-so-insignificant amount, that can be used for investments, or other financial commitments, without any impact on your loan terms, or the overall cost of the loan.

While it is currently no longer feasible to refinance at a lower rate, it is recommended to keep an eye on the market and calculate potential savings using loanDepot’s refinance calculator, in order to act quickly, and lock in the rates when they do fall in the future.

4. Extend Mortgage Term

Another way to cut costs on your mortgage is to extend mortgage term. If your goal is to reduce your monthly payables, even if that means paying more in interest, over a longer period of time, consider extending the term of the loan. 

Mortgage terms typically range from 15, 20, 25, 30, and even 35 years, and as long as the extended date does not go past your retirement age, you should be able to get longer terms with lower monthly payments.

Final Words

Most homeowners remain unaware of the various options that remain at their disposal to significantly overhaul their financial position.

The above-mentioned ways to cut costs on your mortgage have been around for decades, but the number of consumers who opt for them remains quite thin, resulting in millions of Americans reaching ripe old age, with nothing but their beaten-down, decades-old house as their only asset.