Buying a house is a big financial step, and since mortgage interest rates are still high, people who want to buy a house are looking for clever ways to save money.
If you want to buy a house in 2025, knowing two important hacks could save you more than $20,000 over the course of your mortgage.
These tactics are based on making early principal payments and improving your credit score, which are two easy but effective ways to save a lot of money.
Hack 1: The Power of Early Principal Payments
Making an early payment right after closing on your home is an easy way to save money on mortgage interest that many people don’t think of.
According to common sense, the first mortgage payment shouldn’t be due until a month after the close. Say you close on September 9th. Your first payment is usually due on November 1st.
Even though it might feel like a “payment holiday,” this time between bills is actually a chance to get ahead.
How It Works
A payment should be made on October 1, which is the first day of the month after the close, not when it’s due.
Instead of thinking of this payment as an early installment, put the whole amount toward the total balance of your loan.
By doing this, the total amount you borrowed goes down right away. The interest paid over the life of the loan goes down because the capital is going down.
The Financial Impact
Let’s take a typical home purchase scenario:
- Home Price: $420,000
- Down Payment: 7%
- Interest Rate: 7.125%
- Monthly Payment: Approximately $2,800
It’s possible to save about $21,510 in interest over 30 years by making an extra $3,000 payment toward your debt right after closing.
This open financial move could save you a lot of money in the long run and might even shorten the length of your loan if you do it regularly.
Why It Works
When people get a mortgage, they pay more interest in the first few years than in later years. This is called “front-loading.”
Getting rid of the debt early lowers the amount of interest that is added each month.
When interest rates are high, this approach is even more valuable because every dollar saved on interest leads to big long-term gains.
Hack 2: Boosting Your Credit Score for a Lower Interest Rate
One more great way to save on your mortgage is to improve your credit score and get a lower interest rate.
When lenders decide on your mortgage terms, such as the interest rate, they look at your credit score very carefully.
Lenders will often give you better rates if you have a higher number because it shows that you are a reliable borrower.
How Credit Scores Influence Interest Rates
You can save a lot of money by making small changes to your credit score. For instance, if your number goes from “Good” (670–739) to “Very Good” (740–799), you could save $56 a month on a $400,000 mortgage.
This saves more than $20,000 over the course of a 30-year loan. If a borrower with fair credit (580–669) can raise their number to the exceptional range (800–850), the benefits are even greater.
Steps to Improve Your Credit Score
- Pay Bills on Time: Payment history accounts for the largest portion of your credit score. Set up reminders or automate payments to avoid missed deadlines.
- Reduce Credit Card Debt: High credit utilization negatively impacts your score. Aim to keep utilization below 30% of your credit limit.
- Avoid New Credit Applications: Each application triggers a hard inquiry, temporarily lowering your score. Limit applications unless absolutely necessary.
- Maintain Old Accounts: Longer credit histories improve your score. Avoid closing old accounts unless they carry high fees without corresponding benefits.
- Time Your Loan Applications: Apply for loans within a 30-day window to ensure multiple inquiries are treated as a single event by credit bureaus.
Be Patient
Getting your credit score higher takes time and steady work over several months. But since mortgage rates are going down right now, now is a great time to work on improving your score.
For better terms when you’re ready to buy or sell, you’ll have had more time to move forward.
Combining Strategies for Maximum Savings
The great thing about these two hacks is how well they work together. A higher credit score will get you a cheaper interest rate from the start, but paying off the principal early will lower the total amount of interest you pay. To use these tips in your 2025 home-buying plan, follow these steps:
- Start Early: Begin improving your credit score months before applying for a mortgage.
- Save Aggressively: Allocate extra funds for an early principal payment post-closing.
- Plan Your Finances: Work with your lender or financial advisor to ensure these strategies align with your long-term goals.
The Bottom Line
Buying a home costs a lot of money, but if you plan ahead, you can make it more affordable.
By making early capital payments and improving your credit score, you can lower the cost of your mortgage by a large amount.
These strategies may require some upfront effort, but the potential savings—over $20,000—make it well worth the effort.
Start planning now, and by 2025, you’ll be ready to unlock the doors to your dream home with confidence.