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Tips To Save on a Mortgage in a Rising-Rate Environment

What you'll learn: What you can do to save on a home loan when rates are rising.


Everyone likes to save a little money, and when it comes to mortgages, we all especially want to save as much as we can on this considerable expense. Now that mortgage rates are rising from their record lows, we thought we would put together our list of 10 tips to help you save on your mortgage. While these are in some order of importance, not all of them may apply to your situation. However, all should be considered to see if they can help lower your home-buying costs.

  1. Improve your credit score. This is one of the fastest ways to reduce your mortgage rate. The higher the credit score, the more access to lower rates you will have. Taking a few months to pay down your debt will boost your credit score the fastest. Make sure there are no errors on your credit report. If there are, get them removed. You can visit, a government-authorized, safe and free service, to obtain your credit report once a year.
  2. Increase your down payment. While you are working to improve your credit score, you can save more for your down payment, reducing your mortgage in multiple ways because:
    1. The larger your down payment, the lower the rate you will find.
    2. If your down payment is over 20%, you will not have to pay private mortgage insurance.
    3. A larger down payment means your loan amount will be smaller, resulting in smaller monthly payments.
  3. Shop around. If you have followed the two previous points, you will be more attractive to lenders, so shop around. Look not only at rates but origination and other fees. These can be quite different and costly for your closing. Freddie Mac’s research found that obtaining just one more quote saves a homebuyer an average of $1,500 over the life of the loan.
  4. Look at your loan options. Thirty-year fixed-rate loans are not the only option. There are adjustable-rate mortgages that will have a lower rate for a fixed period than a fixed-rate mortgage. ARMs are especially good for anyone who will not stay in their home for longer than the fixed-rate period. Look for FHA, VA and USDA loans if they apply to you. These can reduce your needed down payment from 0-3.5%, which you can then use to make your mortgage payment.
  5. Pay some points. If you choose to pay points at closing, your mortgage rate will go down. Points are prepaid interest to lower your rate throughout the loan’s life. You will need to run the numbers to determine how long it will take to break even. If you are sure you will stay in the home for that length of time, this can lower your total payments.

    Paying Points Example:
    If a 30-year fixed loan is priced at 4.75%, but you choose to pay 1% (one point) of the total loan amount at closing, the lender will lower your rate to 4.5%.

    The rate deduction for points will depend on the lender, but paying points could save you a lot over the duration of the loan.

PRO TIP: Paying points should be balanced with paying a higher down payment. One strategy may be financially better than the other, and a loan officer can help you make the right choice.

  1. Reduce your maximum purchase price. Saving mortgage costs might require some concessions. By only looking for homes that are below a particular price, you will ensure that your mortgage will also be lower. This method will allow you to possibly make that higher down payment, lowering costs further.
  2. Negotiate everything. Start by negotiating with the seller. Never accept the first price shown. If it is a hot market, this may not be possible, but even in hot markets, it never hurts to try. Next, you can negotiate with lenders for both the interest rates and the fees. Not all lenders will be willing to negotiate, but again, it never hurts to try. Not attempting to do so means you might be leaving money on the table. If a lender says they cannot move on something, that is your chance to talk to another lender (see No. 3 above). After all, any concession from the seller or lender means you save money every month for the next 30 years.
  3. Pay your mortgage faster. This is especially good with ARMs. During the fixed-rate period, if you pay extra each month that equals what you would pay with a typical 30-year fixed mortgage, you will be paying at the ARM’s lower fixed-rate period, building more equity into the home. When the adjustable-rate period comes, your total loan will be less, and you will owe less per month. For fixed-rate mortgages, generally, you want to pay back a low-rate mortgage slowly and a high-rate mortgage as quickly as possible.

    PRO TIP: If you have a high rate and rates go down, it might be worthwhile to refinance.

  1. Wait for a dip in rates. You don’t have to accept today’s rates. You can float your rate and see if rates move lower. This can be a risky move, and at the time of this writing (April 2022), most pundits believe rates are headed higher. Just be sure you can still afford the home if rates stay high or go higher. Follow the rates and track their general trend. If you see a dip has come, pull the trigger, take advantage of the opportunity and lock in. This strategy is excellent if you are refinancing because you have no time constraints and refinancing is optional.
  2. Try piggybacking. Piggybacking is a term for taking out two mortgages concurrently. This means that loan-to-value ratio of the first mortgage is less than 80%, and therefore, you won’t owe private mortgage insurance. For anyone who may be looking at a jumbo loan, this method could also get the loan below Fannie Mae and Freddie Mac’s limits, allowing you to stay in the conforming area. If you have a smaller deposit and you add the second mortgage to it, the combination may allow you to save significant funds.

All of the above strategies are useful to reduce the total price you will pay for your mortgage. Many of them are valuable for everyone, and others are advantageous to specific buyers. Consider all of them to determine what is best for you. The more of them you can take advantage of, the lower your overall costs will be.

Even when interest rates are rising, it’s still possible to save and get the home you want.

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Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5