Six Ways to Cut Mortgage Costs

Polish Your Image
Before you apply for a mortgage, check out your credit score. If it's not up to snuff, taking some steps to give it a boost could easily save you thousands in mortgage interest.

Consider this: Folks who have a top score (760 to 850), can get a rate of 5.96% on a 30-year, fixed-rate mortgage these days, according to Fair Isaac, the firm that creates the risk calculations used to calculate credit scores. A score just a few points lower (759 to 700) will net you a higher rate of 6.18%. For a $250,000 loan, that's a difference of $12,772 in interest over the life of the loan. (Crunch the numbers yourself using our mortgage calculator.)

The good news? Many folks can increase their credit score significantly in just a few months. To see how, check out our column 7 Ways to Boost Your Credit Score.

Get the Right Loan
"Walking into a lender and saying, 'I need a mortgage' is a lot like going to a used-car lot and saying, 'I need a car,'" says Keith Gumbinger, vice president of HSH Associations, a financial surveyor and publisher. You'll end up with something, but it could be a lemon. So do some research ahead of time to know which one makes the most sense for you. (Let's face it, there are some wacky mortgage products out there. For more, see our story My, What an Exotic Mortgage You Have.)

For help with this, see our story What Kind of Loan Should You Get?. You also may want to check out our Fixed or Adjustable? worksheet.

Make a Down Payment of at Least 20%
In this new era of interest-only loans, many home buyers are skipping this advice. But if you can swing it, this is still the way to go. Not only will this provide some equity in your home, but it's also a way to avoid private mortgage insurance, or PMI. (This protects the lender if you default on the loan.) Costs for PMI can be significant over time — about $40 a month per $100,000 of the loan, according to estimates by the Federal Trade Commission.