Here's how one family did it

How We Saved $34k in Interest on Our Mortgage Before Closing

by Laura Harris

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Two months before my husband and I became parents, we panicked. We didn't own a home yet. We couldn't help but wonder if we were terrible for bringing our child home to a 700-square-foot apartment. After reviewing the facts, the reality of our situation surfaced. We couldn't take the financial risk of buying a house with no down payment, a tiny emergency fund, and credit card debt right before losing one of our two full-time incomes.

So, we stayed put, worked hard, and brought our baby into a debt-free home. She shared a nursery with our office, but she didn't seem to mind. This same intentionality helped us when we did finally buy our first house. Because of planning ahead, we'll save more than $36,000 in interest over the life of our mortgage. Here's how we did it.

In these next four examples, I'm going to explain and illustrate the power of our decisions as my husband and I prepared to buy a house. I'll share some of the math behind these choices, but only in an effort to drive home these concepts.

Your situation will look different. It is my hope that you'll finish reading this with a better understanding of how important it is to research, communicate with your spouse, and plan ahead.

I am not a mortgage expert. This information is meant to educate the general public on how we saved money on our first mortgage. To learn more about your own financial options, seek guidance from a professional.

1. We saved up a down payment. When our parents were furrowing their brows at our "not so baby friendly" apartment, we had absolutely nothing saved for a down payment. By saving up 5% plus closing costs, we shaved a significant slice off our interest.

Running Total Saved in Interest: $3,169.28

2.We committed to pay extra on every mortgage payment

Running Total Saved in Interest: $23,041.06

3. We got a shorter mortgage. A big assumption people make is that they can't afford anything but a 30-year mortgage. We were no different. As we sat with our mortgage officer, we flippantly asked what our monthly payments would be if we went with a 20-year versus a 30. My jaw dropped when the results came in.

Our payments for a 30-year mortgage were projected to be $549.22. The 20-year was only $657.98. Add our extra $100 toward principal and the total became $757.98. Our single-income family of four could afford that, and all it took was asking for a quote.

Running Total Saved in Interest: $34,046.03

4. We found a competitive interest rate. Mortgage rates vary like the weather, but at the time of this writing, they're being kind to the world of home buyers. The 30-year mortgage we originally requested came with a 3.75% fixed rate. When we chose the 20-year, it was at 3.5%. Here's one more reason to simply ask.

Grand Total Saved in Interest: $36,117.96

We can't predict the future, but this experience taught my husband and me to plan further ahead and save even more money next time. In fact, we'd love to do a 15-year. Shucks, while we're at it, we may as well just pay cash. (Maybe one day.)

As I said before, your situation will be different from mine, just like your house is surely different than our house. The point is to think past what people normally do with their finances and chase down the options that work best for your family's future. Go big or go home, as they say.

Ready to experiment with how you can save on your future mortgage or possibly refinance your current loan? Try Bankrate's free tool for comparing mortgage rates here.

Reviewed July 2017

Laura Harris is a writer for hire, wife, and mother of two with a background in personal finance. When she's not on an adventure with her family or curled up with a good book, you can find her writing about family and finance at Piggy Bank Dreams.

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