#1 Option Refinance Your Mortgage

The most common way to save money is by refinancing your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments.

However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven’t already, you should.

Bi-weekly mortgage payments

Making a payment every two weeks adds one all-principal payment to your mortgage each year. Instead of taking 12 payments per year, the bi-weekly payment plan asks for one payment every two weeks, which adds up to 13 payments per year.

The extra payment you make each year is applied to your principal, so your interest also decreases with each reduction in principal. Plus, the more principal you pay, the quicker you build equity in your house.

The conventional logic is that increasing the frequency of the payments doesn't allow interest to build up and throughout a 30- or 15-year mortgage that can equal years eliminated from your loan.

Just be sure your mortgage servicer allows you to make bi-weekly payments, and it doesn’t add fees to your statement for making them. Those fees can add up, resulting in little to no benefit for you.

Along that same line, be sure to ask if your bi-weekly payment is applied upon receipt, or if it’s held until the end of the month (or even the end of the year). The actual benefit of bi-weekly payments is when that amount is applied upon receipt.

Extra mortgage payments

Even if you don’t set up a bi-weekly plan with your servicer, you can accomplish the same goal of saving money on mortgage interest by making one extra mortgage payment a year on your own; or dividing your monthly payment by 12 and adding that amount to your payment every month. Either option can help you pay down your loan faster, saving thousands in overall interest.

The former option allows you to choose if and when you pay extra toward your mortgage loan. Say you receive a large tax refund or performance bonus from work — it may be worth putting some (or most) of it toward your loan principal. This allows you to save significant money while taking years of interest payments off your loan, depending on how much you’re able to spend.

The second option of putting more money toward your monthly payment can also result in incredible savings. Let’s consider this example.

Say your original loan amount is $400,000. You’ve committed to a 30-year conventional loan at a 4% interest rate (4.41% APR). Not considering escrow, your monthly payment usually is $1,910.

But if you can put an extra $100 toward your monthly amount, you may be looking at $29,801 in total savings. This would help you pay your loan off two years and eight months faster!

Drop Private Mortgage Insurance (PMI)

If you financed your home with a conventional mortgage, but you did not put down 20% of the purchase price, chances are you were hit with PMI. It may not have seemed like a big deal at the time since it got you into your dream home for less money down. But now that you’re a few years into your mortgage, that cost may be adding up.

Here’s the good news. You can ask your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home’s appraised value. This can happen if your home’s value has gone up or you have repaid some of the principal. It requires an appraisal to confirm your home value, but once that’s done (and has verified you meet the threshold), you can be PMI free.

Put down a large down payment

1. The larger your down payment, the less you need to borrow and the smaller your monthly mortgage payments will be.

2. It also means paying less in total interest.

3. If you can put down at least 20% of the home price, you can also avoid paying private mortgage insurance — which protects the lender in case you default — saving thousands of dollars a year.

4. If you put more money down, you can also avoid paying points and other loan fees.

5. While you're saving to hit that 20% mark, be sure to keep those funds safe.