July 2000

Cut Mortgage Costs
to Save Thousands

© Talbot Stevens

Mortgage payments are one of the largest voluntary expenses of our lives. Fortunately, there are many ways to reduce this huge expense and literally save tens of thousands of dollars over the life of your mortgage.

Weekly or bi-weekly payments, shorter amortization periods, and prepayments are all standard ways to slash mortgage interest costs. There is nothing magical about these approaches. They all amount to repaying the debt faster than originally scheduled.

The beauty of paying one fourth of the monthly payment every week is that you won't notice the difference in annual payments. Since there are an average of 4.35 weeks in a month instead of 4, you painlessly pay a tiny bit more every month.

A $100,000, 8%, 25-year mortgage paid weekly instead of monthly saves almost $32,000 in interest and is paid off in about 20 years. If monthly payments are more convenient, simply reducing the amortization period from 25 years to 20 saves the same amount.

With such a competitive market, it makes sense to shop around to see if someone else has a better offer, or to encourage your current lender to sweeten theirs. Check out mortgage brokers, where you can access many lenders at once, and can often get rates as much as 1% below banks' posted rates.

Negotiating, including asking for the renewal fee to be waived, is now common. Most people should get 0.5% off just by asking. If you have a lot of business with your lender, you might get higher discounts of up to 1% off of the posted mortgage rate, but only if you ask.

If your current lender doesn't seem eager to keep your business, competitors make it easy to transfer to them, often covering most or all of any transfer fees involved.

To attract you to switch, some lenders are offering cash back or big up-front discounts with rates below prime. Getting a cash rebate or a rate discount, even if it is a temporary one, is obviously better than paying the posted rate. But you'll have to be a math-savvy consumer to properly evaluate which mortgage offer is best.

Always remember one of the common realities of advertising: "What the big print giveth, the little print taketh away".

The fine print for the 3% cash back offer says you must take out a term of at least 5 years at the full posted rate. Depending on the discount you are able to negotiate, a 3% rebate up front might be better or worse.

Without getting too complicated, we can see that saving 3% at the start is better than saving 0.5% per year over 5 years. On the other hand, if you can negotiate a 1% discount per year for 5 years, you would be better off passing on the 3% cash offer. After crunching the numbers, a 3% rebate is better unless you can negotiate at least 0.8% off of the regular rates. This assumes that the 3% rebate is paid against the mortgage at the start, not spent, and that you want a longer 5-year term.

For more information, visit