6 Ways to Reduce Your Mortgage Costs

If you follow the strategies below, you may be able to reduce your mortgage costs and make homeownership more affordable.  


Opt-In for An Adjustable-Rate Mortgage Loan: 


An adjustable-rate mortgage (ARM) is a type of mortgage loan that offers an initial fixed-rate period, during which your interest rate remains constant. After this initial period, the rate adjusts periodically — usually annually — based on a specific financial index. One of the primary benefits of ARMs is that these loans often come with lower initial interest rates compared to fixed-rate mortgages. Talk about savings! In today's high-rate environment, what this means for you is paying lower monthly payments during the initial fixed period, allowing you to save money early on. By taking advantage of the lower initial rate, you can save substantially on interest costs while you're at home. Sounds easy, right?


In general, though, ARMs are best suited for borrowers who have short-term plans for their homes, such as those who anticipate relocating or refinancing within the initial fixed-rate period. Reason being is because the interest rate on the loan can climb higher if rates go up after your initial fixed-rate period ends, resulting in you paying more in interest. Explore the mortgage rates you could qualify for here. 


Purchase Points or Buy Down the Rate 

Another route you can also consider is paying for mortgage points if you have extra funds available at the time of purchase or refinance. With mortgage points, you pay a percentage of the loan amount upfront in exchange for a lower interest rate. While this requires an initial investment, it can result in long-term savings on interest costs. Isn't that what you want? More savings! Or, if you're in a buyer's market, you may be able to negotiate a deal where the seller or builder pays to temporarily buy down the rate for a year or two which will temporarily lower your interest rate. That can help you to save money in the short term — or the long term if you're expecting rates to decline and plan to refinance before the rate buydown ends. 


Consider Utilizing a Shorter-Term Loan 

Although shorter loan terms, such as 15 or 20 years, may have higher monthly payments compared to 30-year mortgages, they often come with lower interest rates. For example, as of September 11, 2023, the average 15-year mortgage rate was 6.79%, while the 30-year mortgage rate averaged 7.56% — nearly a full point higher. 

In a high-rate environment, opting for a shorter loan term may help you lock in a lower rate and pay off your mortgage faster, ultimately reducing your total interest costs. 


Improving Your Credit Score Helps 

Your credit score plays a vital role in determining the interest rate you qualify for. Having a higher credit score can help you secure a more favorable rate, even in a high-rate environment. Sounds like a great deal! 

If you have time prior to applying for a mortgage, consider taking steps to improve your credit by paying bills on time, reducing credit card debt and addressing any errors on your credit report. A better credit score can lead to substantial savings on your mortgage over the long run. 


Make Sure You Shop Around for Lenders 

Don't settle for the first mortgage loan offer you receive. Instead, shop around and compare quotes from multiple lenders. Each lender may have different rates and terms, so it's essential to do your due diligence. The rate you're offered with one lender could end up being vastly different from the rate you're offered with a different one. However, at Gold Financial Services we don't stop until we find our clients the solutions they need to get the deal done. We get it right the first time. Our clients benefit from utilizing our services because our team works to help you find the best loan options based on your financial situation and goals. 


Make Those Extra Payments 

Another way to save on mortgage costs is by making extra payments, if it fits within your financial means, consider making extra payments toward your principal balance. This reduces the overall amount of interest you'll pay over time. For example, you can consider making bi-weekly payments instead of monthly ones, which effectively results in an extra payment each year. Alternatively, you can make occasional lump-sum payments whenever you have extra funds available, such as a tax refund or a work bonus. Many miss out on this opportunity, so instead of planning that trip to Europe or catching a great sporting event, place more funds toward your mortgage and you'll thank yourself later in the long-run. These additional payments can significantly shorten the loan term and reduce the total interest paid. 


Here’s The bottom Line:


So what did we learn? Well, in today's high interest rate environment, it's crucial to be proactive and strategic in managing your mortgage costs — and that's true whether you're buying a new home or looking to reduce expenses on your current mortgage. Luckily, these strategies we have shared with you are meant to better navigate the challenging interest rate landscape. Always remember by refinancing, making extra payments, improving your credit, exploring different loan terms, shopping around for lenders and considering point options, could result for you to have a better chance of saving money over the life of your loan. If you're inspired to purchase or refinance, don't hesitate to give us a call at 210-366-1070, we're here to get the job done and help you find your dream home.