How to Save on Interest Over the Life of Your Mortgage

4 August 2025

Buying a home is one of the biggest financial commitments you'll ever make. And while securing a mortgage is an essential step in homeownership, the interest you pay over the life of the loan can add up to an eye-watering amount. The good news? There are plenty of ways to reduce that cost and keep more of your hard-earned money in your pocket.

If you're looking for smart strategies to slash your mortgage interest, you're in the right place. In this guide, we’ll break down actionable steps to help you save thousands (if not tens of thousands) of dollars over the term of your loan.

1. Make Extra Payments When Possible

One of the simplest yet most effective ways to save on mortgage interest is by making extra payments. Even small, occasional extra payments can significantly reduce the total interest you pay.

How Does This Work?

Interest is calculated on the remaining loan balance. By paying extra toward the principal, you reduce the balance faster, which in turn decreases the interest accumulating on the loan.

Example: Let’s say you have a $250,000 loan at a 4% interest rate for 30 years. If you make an extra $100 payment toward the principal every month, you could shave off nearly 5 years from your loan term and save over $30,000 in interest!

Ways to Make Extra Payments:

- Add a little extra to your monthly mortgage payment.
- Make biweekly payments instead of monthly payments.
- Use work bonuses, tax refunds, or other windfalls to make lump-sum payments.

2. Refinance to a Lower Interest Rate

If interest rates have dropped since you took out your mortgage, refinancing might be a game-changer. A lower interest rate means smaller monthly payments and less interest paid over time.

When Does Refinancing Make Sense?

- If your current interest rate is significantly higher than the market rate.
- If your credit score has improved since you first got your mortgage.
- If you plan to stay in your home long enough to recover the closing costs associated with refinancing.

Pro Tip: Run the numbers before refinancing. Use a mortgage calculator to determine how much you'll save versus the costs of refinancing.

3. Opt for a 15-Year Loan Instead of a 30-Year Loan

Choosing a 15-year mortgage over a 30-year mortgage can drastically reduce your total interest. Yes, monthly payments will be higher, but the savings in interest can be staggering.

Example:
- A 30-year loan for $250,000 at 4% interest costs about $179,674 in interest over the life of the loan.
- A 15-year loan at the same rate costs around $82,860 in interest—that’s nearly a $100,000 difference!

If you can comfortably afford the higher monthly payment, going for a shorter loan term is one of the best ways to save.

4. Make Biweekly Payments Instead of Monthly Payments

This is a simple yet powerful trick to cut down on interest. Instead of making a full mortgage payment once a month, split it in half and pay every two weeks.

The Math Behind It:

- There are 12 months in a year, so you typically make 12 payments per year.
- By switching to biweekly payments, you end up making 26 half-payments (which equals 13 full payments per year instead of 12).
- That extra month’s payment each year can reduce your loan term by several years and save you thousands in interest.

The best part? You probably won’t even feel the difference in your budget since you're just slightly adjusting the timing of your payments.

5. Consider an Adjustable-Rate Mortgage (ARM) – But Proceed with Caution

If you plan to stay in your home for only a few years, an adjustable-rate mortgage (ARM) could save you interest in the short term. ARMs typically start with lower interest rates than fixed-rate mortgages.

The Catch?

The rate will adjust after a set period (usually 5, 7, or 10 years), and it can go up significantly. If rates rise and you haven’t sold or refinanced in time, you could end up paying much more interest in the long run.

Best for:
- Homebuyers who plan to sell or refinance before the rate adjusts.
- Those comfortable with potential rate fluctuations.

6. Improve Your Credit Score Before Applying for a Loan

A higher credit score can unlock lower interest rates, which means paying less interest over time.

Tips to Boost Your Credit Score:

- Pay off outstanding debts and credit cards.
- Avoid opening new lines of credit right before applying for a mortgage.
- Make all payments on time.
- Check your credit report for errors and dispute any inaccuracies.

A slight improvement in your credit score can mean a significant difference in your mortgage rate—sometimes saving you thousands of dollars.

7. Shop Around for the Best Mortgage Rates

Would you buy a car without comparing prices at different dealerships? Probably not. So why settle for the first mortgage offer you get?

Why Shopping Around Matters:

Lenders offer different interest rates and terms. Even a 0.5% lower rate can save you tens of thousands of dollars over the life of your loan.

What to Compare:
- Interest rates
- Loan terms
- Fees and closing costs

Get quotes from multiple lenders, and don’t be afraid to negotiate for a better rate.

8. Avoid Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you’ll likely be required to pay private mortgage insurance (PMI). While PMI doesn’t directly impact your mortgage interest rate, it’s an extra cost that adds up over time.

How to Avoid PMI:

- Put down at least 20% when buying a home.
- If you already have a mortgage with PMI, check if you can remove it once you have at least 20% equity in your home.

That alone can save you hundreds of dollars per month—money that can be redirected toward paying down your mortgage faster.

9. Recast Your Mortgage Instead of Refinancing

If you come into a lump sum of money (like an inheritance or bonus), you can recast your mortgage rather than refinancing.

How Recasting Works:

- You make a large lump-sum payment toward your principal.
- Your lender then recalculates your payments based on the new, lower balance.
- You keep your existing loan terms (unlike refinancing, which involves a new loan).

This strategy can lower your monthly payments and reduce total interest without going through the hassle and costs of refinancing.

Final Thoughts

Your mortgage is likely the biggest loan you'll ever take—but that doesn’t mean you have to accept paying mountains of interest. By taking proactive steps like making extra payments, refinancing, improving your credit score, and shopping for the best rates, you can save tens of thousands of dollars over the life of your loan.

The key is to start now. The sooner you implement these strategies, the more you'll save in the long run. So, what’s your next move?