Strategies for Saving on Mortgage Interest in 2025
With a well-devised plan, the interest accrued on your mortgage over the years can be reduced substantially. To help you save as much money as possible, we've compiled some of the best strategies for saving on mortgage interest in 2025.
Key Takeaways
- ✓ Extra payments can save thousands in interest
- ✓ Refinancing at the right time is crucial
- ✓ Shorter loan terms save significantly on interest
- ✓ Eliminating PMI should be a priority
Over and Above Monthly Payments
The life of your mortgage can be shortened dramatically simply by making one additional payment each year. Better yet, by switching from monthly payments to bi-weekly payments, you will effectively be making one additional payment every year on top of your regular payments which comes out to 13 payments instead of 12.
Refinance When it is Advantageous
Mortgage rates constantly fluctuate, and it is always prudent to follow their movements. If mortgage rates hit a rock bottom which is significantly lower than your existing rate, it is time to refinance for potentially great savings. Our mortgage calculator is a handy tool to analyze your existing loan against refinance prospects.
Refinancing Tip:
Refinancing typically makes sense when you can reduce your interest rate by at least 0.75% and plan to stay in your home for several more years.
Go for a 15-Year Mortgage
It is generally observed that people opt for 30-year mortgages. However, the 15-year loans usually come with lower interest rates. Although the overall monthly payments will be on the higher side compared to a 30 year term, the reduced interest applied will translate to savings over the life of the loan.
| Loan Term | Interest Rate | Monthly Payment | Total Interest |
|---|---|---|---|
| 30-Year | 6.5% | $1,896 | $332,000 |
| 15-Year | 5.75% | $2,620 | $121,600 |
| Savings | 0.75% | +$724 | $210,400 |
Eliminate PMI at the Earliest Opportunity
You are most likely paying private mortgage insurance (PMI) if you put less than 20% down. Once you reach 20% equity, ensure that your lender eliminates PMI so you can enjoy a lower monthly payment.
Important:
Some lenders require you to request PMI removal, while others automatically terminate it at 78% loan-to-value ratio.
Pro Tip: Extra Payments Make a Big Difference
On a $300,000 mortgage for 30 years at 6.5% interest, if you were to pay an extra $250 each month, it would reduce your interest payments by more than $150,000 and you would retire the loan 10 years earlier. Even just one extra payment per year would save you over $28,000 in interest and shorten your loan term by 4 years.
Analyze Mortgage Points
If you will be in the house for a long period, paying points (1 point = 1% of your mortgage amount) makes sense as it reduces the interest rate. Each point typically reduces your rate by 0.25%, and the break-even point is usually 5-7 years.
Calculate Your Savings
Use our mortgage calculator to see how much you could save with these strategies:
Try Mortgage CalculatorConclusion
Reducing mortgage interest requires a mix of wise upfront decisions and strategic actions throughout the life of the loan. By implementing even a few of these suggestions—making extra payments, refinancing at the right time, choosing a shorter loan term, eliminating PMI, and considering mortgage points—you can save tens or even hundreds of thousands of dollars over the life of your mortgage.
The key is to start early and be consistent. Small actions taken today can lead to significant savings tomorrow. Remember to use our mortgage calculator to explore different scenarios and find the strategy that works best for your financial situation.