5 Mortgage Hacks That Actually Work (And 4 That Rarely Do)
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Assuming a mortgage is a huge financial commitment for the average American. Who wouldn’t want to seek hacks to make a mortgage cheaper either in terms of payments or interest paid over time?
The trick is to follow only those mortgage hacks that can actually save you money versus ones that are more fluff than actual savings.
Benjamin Schieken, mortgage professional and founder of Fincast, explained five mortgage hacks that actually work and four to be cautious of.
5 Hacks That Work
Here are the hacks that can pay off.
1. Shop Like a Lender
The best mortgage hack is to shop the way your lender would shop, Schieken said. “A lender would never take one offer from a single source; they would test their own offer against others in the market to make sure they were getting the best deal possible. Borrowers should do the same.”
However, it helps if you know what to shop for. Most people shop the “wrong” things, such as comparing loan quotes, fee sheets, preapprovals or rate summaries that don’t reflect the real cost of the loan, he noted.
“The only document that matters is the loan estimate. It’s federally required, standardized across lenders and shows your actual rate, fees and total cost.”
When you shop your loan estimate, you’re using the same leverage lenders use behind the scenes to find savings that most consumers never realize exist.
2. Check Different Pricing Incentives Across Lenders
Different types of lenders have different pricing incentives, so it’s worth checking them all before settling, Schieken said. For example, if you get an appraisal waiver with one lender, you should get it with all.
“Don’t let a lender make it seem like they’re doing you a favor by covering appraisal costs. You either qualify for a waiver or you don’t, and the cost is either baked into your loan or paid separately.”
3. Choose Lowest Total Interest Paid
Another hack is to choose the offer that gives you the lowest total interest paid for the period of time you plan to be in the loan, Schieken said. “Page three of the loan estimate shows the total interest paid over the life of the loan, but you should calculate the interest for the number of years you actually expect to keep the loan before selling or refinancing with an amortization calculator.”
Once you’ve chosen the right offer, you can recast your loan by making a lump-sum principal payment, refinance into a shorter term or make additional payments toward principal, he explained. “All of these options legally reduce total interest or shorten the term.” Just be sure there aren’t penalties for early payoff or balloon clauses that could create extra costs if you pay down too quickly.
4. Make Extra Payments
One of the simplest hacks is to make extra payments on the principle to reduce the amount of interest you’ll owe and to cut time off the loan. “You’re not just saving money, you’re speeding up the point when you own more of your home and less belongs to the bank,” he explained.
5. Switch Lenders
You also have the right to switch lenders during the refinance process, even after an appraisal has been completed, something not a lot of borrowers realize, Schieken said.
But be wary of “no-cost refinances,” he said, as refinances always cost money, usually between 1% and 3% of the loan amount.
“Lenders might advertise it as no-cost, but that cost is either built into the rate or covered by the lender in another way. There are also third-party costs that the lender can’t control like taxes and recording fees.”
4 Hacks That Don’t Work
These hacks are worth skipping.
1. Trust Rate Comparison Sites
Comparison shopping sites and rate tables you’ll find online are not going to be accurate, Schieken said. “The rates you see there are not the rates you’ll actually get.”
When you complete an application, the lender is required to send you a formal loan estimate, and that number almost always changes, he said.
The same rule applies offline, however. Phone quotes and email quotes that aren’t official loan estimates have a high probability of changing once the lender discloses a formal offer. “So, take every quote with a grain of salt until the lender issues a Loan Estimate.”
2. Forget To Lock This In
Another common mistake is not locking in the loan estimate, Schieken said. “Some lenders disclose rates on unlocked estimates that aren’t realistic because they know they can adjust the rate later when it gets locked. If you want to know what you’re actually getting, shop locked loan estimates.”
The only thing that counts is the loan estimate.
3. Buy Points Without Doing Your Homework
While on the one hand, buying points can save money, Schieken warned that it depends on how long you plan to keep the loan. “You need to calculate the break-even point,” he said. For example, if it costs $1,000 to buy a point and that saves you $100 a month, you’ll break even after 10 months. If you plan to be in the loan for two years, it’s a great move. If you plan to sell or refinance sooner than your breakeven point, skip it.
4. Assume Being Mortgage-Free Is Always the Right Move
While being mortgage-free sounds ideal, Schieken said it isn’t always the best financial move. “Sometimes it’s smarter to keep your mortgage and invest your cash elsewhere, especially if your interest rate is low. You may earn a better return or have more flexibility with your money by keeping liquidity instead of tying it all up in your home.
“I’ve seen people pay off their homes and then retire, only to find all their wealth locked in the property.” So before paying off your home completely, look at your interest rate, tax advantages and what else you could do with that capital to keep your long-term financial flexibility.
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