Wondering how to cut down your mortgage interest? Whether you’ve recently purchased a home or have been paying on your mortgage for years, several effective strategies could help you minimize the interest you pay. 

In this blog post, Colorado Springs real estate expert Barb Schlinker and the professionals at Your Home Sold Guaranteed Realty - Barb Has the Buyers Team will discuss how you can cut down your mortgage interest.

Key Takeaways:

• Refinancing to a lower rate or shorter term may provide substantial savings if your current rate is significantly higher than today’s rates.
• Making extra principal payments or switching to biweekly payments can significantly reduce your lifetime mortgage interest without the need to refinance.
• Improving your credit score before applying for a mortgage or refinancing can help you secure more favorable interest rates.

How Can I Cut Down My Mortgage Interest? – 8 Tips

Reducing the interest you pay on your mortgage can save you tens of thousands of dollars over the life of your loan. Here are eight proven strategies to help you cut down on mortgage interest and build equity faster:

1. Make Extra Principal Payments

One of the simplest ways to reduce your mortgage interest is to make additional payments toward your principal balance. When you make extra payments, you directly reduce the amount you owe, which means less interest accrues over time.

Top Colorado Springs realtor notes,

“Many of our clients in Colorado Springs have had great success with the ’round up’ strategy. If your mortgage payment is $1,878, consider rounding up to $2,000 each month. That extra $122 goes directly to your principal and can shave years off your mortgage while saving thousands in interest.”

You don’t need to make large additional payments to see benefits. Even modest extra payments, when made consistently, can have a substantial impact over time. For example, paying an extra $100 per month on a $400,000 30-year mortgage at 6% could save you over $30,000 in interest and help you pay off your loan approximately 3 years earlier.

However, be sure to check with your lender to see if there are any prepayment penalties in your mortgage agreement.

2. Refinance to a Lower Interest Rate

When market interest rates drop significantly below your current mortgage rate, refinancing can be an effective way to reduce your interest costs. Refinancing makes the most sense when:

• You can reduce your interest rate by at least 0.75% to 1%
• You plan to stay in your home long enough to recoup closing costs
• Your credit score has improved since you obtained your original mortgage
• You have sufficient equity in your home, typically at least 20%

Remember that refinancing comes with closing costs, typically 2% to 5% of the loan amount. Make sure to calculate your break-even point—how long it will take for your interest savings to exceed these costs.

3. Switch to a Shorter-Term Loan

Converting from a 30-year mortgage to a 15-year or 20-year loan typically comes with a lower interest rate. While your monthly payments will be higher, you’ll pay significantly less interest over the life of the loan.

For example, if you have a $400,000 mortgage at 6% interest on a 30-year term, switching to a 15-year term at 5.25% would increase your monthly payment by about $900 but could save you approximately $230,000 in total interest payments.

This strategy works particularly well if your income has increased since you first obtained your mortgage, allowing you to comfortably afford the higher monthly payments.

4. Improve Your Credit Score

Your credit score plays a crucial role in determining the interest rate you qualify for when obtaining or refinancing a mortgage. Even a small improvement in your score can translate to a lower rate and significant savings.

To improve your credit score:

• Pay all bills on time
• Reduce credit card balances. Aim for using less than 30% of available credit
• Don’t close old credit accounts
• Limit new credit applications
• Check your credit report for errors and dispute any inaccuracies

In Colorado Springs’ competitive housing market, having an excellent credit score can give you access to the best mortgage rates available, potentially saving you thousands over the life of your loan.

5. Consider an Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages typically offer lower initial interest rates compared to fixed-rate mortgages. If you don’t plan to stay in your home long-term, an ARM could help you save on interest during the fixed-rate period.

For instance, a 5/1 ARM offers a fixed rate for the first five years, after which the rate adjusts annually based on market conditions. If you plan to sell or refinance within that initial period, you could benefit from the lower fixed rate without having to deal with future rate increases.

Barb Schlinker adds,

“We’re seeing more Colorado Springs buyers consider ARMs in today’s market. They can provide significant savings for our military families who know they’ll be relocating in a few years.”

ARMs do carry more risk than fixed-rate mortgages, so be sure to consider your future plans and financial situation before choosing this option.

6. Shop Around for Lenders

Different mortgage lenders offer varying rates and terms. For this reason, taking the time to shop around and compare offers from multiple lenders can result in meaningful interest savings.

When comparing mortgage offers:

• Look beyond the interest rate to the Annual Percentage Rate (APR), which includes additional fees
• Compare closing costs and lender fees
• Ask about rate lock options
• Inquire about special programs for first-time buyers, military members, or other groups
• Consider local Colorado Springs lenders who may offer competitive rates to attract local business

Many lenders can provide rate quotes with minimal information, without affecting your credit score through a “soft pull.”

7. Buy Discount Points

Mortgage points, also called discount points, allow you to “buy down” your interest rate by paying an upfront fee. Each point typically costs 1% of your loan amount and reduces your rate by about 0.25%.

For example, on a $400,000 mortgage, one point would cost $4,000 and might reduce your rate from 6% to 5.75%. This strategy works best when you plan to stay in your home for several years. This allows the monthly savings to exceed the upfront cost of the points.

To determine if buying points makes financial sense:

1. Calculate the monthly savings from the reduced rate
2. Divide the cost of the points by the monthly savings
3. The result is your break-even point in terms of number of months

If you plan to stay in your home longer than the break-even point, buying points could be a smart financial move.

8. Make Biweekly Payments

Instead of making 12 monthly payments per year, consider switching to a biweekly payment schedule, where you pay half your monthly amount every two weeks. This results in 26 half-payments annually, equivalent to 13 full monthly payments instead of 12.

This simple change can:

• Reduce your loan term by approximately 4 to 5 years on a 30-year mortgage
• Save tens of thousands in interest over the life of the loan
• Align better with biweekly pay schedules that many employers use

Before implementing this strategy, check with your lender to ensure they accept biweekly payments and properly apply the extra funds to your principal.

How Can You Find the Best Strategy?

The best way to cut down your mortgage interest will depend on your specific financial situation, how long you plan to stay in your Colorado Springs home, and current market conditions.

Often, combining several strategies—such as making biweekly payments while improving your credit score for a future refinance—can maximize your interest savings.

Consider consulting with a mortgage professional who understands the Colorado Springs market to analyze your current mortgage and identify the most beneficial strategy for your situation. With mortgage interest typically being one of a household’s largest expenses, taking steps to reduce it can have a significant positive impact on your long-term financial health.

Barb Schlinker is the Best Realtor in Colorado Springs

At Your Home Sold Guaranteed Realty - Barb Has the Buyers Team, Barb Schlinker and her entire team have developed proven strategies for buying and selling homes quickly and for top dollar after 27 years in the industry. Her weekly radio show, “Your Real Estate Voice,” demonstrates her deep market knowledge and commitment to educating clients about the buying process.

Barb has helped many clients buy their dream houses and has earned hundreds of five-star reviews over the years. This has earned her the reputation as the best realtor in Colorado Springs.

Plus, Barb’s Colorado Springs real estate agency offers a unique VIP Buyer Program that protects your interests. With this program, you get curated property hotlists, free home-buying resources, and our unique Buyer Satisfaction Guarantee. 

To learn more about buying a house in Colorado Springs with our team, reach out to us today at 719-301-1802 or [javascript protected email address]. We can help you find the best Colorado Springs homes for sale today!

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