4 ways to save thousands on your mortgage

Consumer Reports Money Adviser

If you haven't talked to your mortgage lender lately, maybe you should. Your lender may not be advertising it, but you might be able to nab a better rate on your loan--no closing costs, no lawyers, no endless paperwork. All you have to do is ask.

Even if you've refinanced fairly recently, you should call your lender to find out if it offers one of these no-muss, no-fuss deals. At press time rates were still hovering near 40-plus-year lows, so you may discover that the great rate you got just a year or two ago isn't as good as the rate you can get today.

OK, you're wondering, why would lenders offer customers a better rate without hitting them up for extra fees? "It's a win-win situation," says Keith Gumbinger, vice president at HSH Associates in Pompton Plains, N.J., a financial publisher that provides online mortgage quotes. "The lender gets to retain you, and you get a lower term."

In addition to doing a no-closing-cost refi, you can save on your mortgage by making a few extra payments or doing a traditional refinancing with a few twists.

Streamlined no-closing-cost refinancing deals and loan modifications, which simply change the rate on your loan, are typically only offered by major lenders like Bank of America, Washington Mutual, and Wells Fargo--large financial institutions that hold onto the loans they generate. Two staffers at Consumer Reports recently took advantage of a streamlined no-closing-cost refinancing program through Wells Fargo. One received an offer in the mail for the bank's no-cost "Three-Step Refinance System." She was able to swap her 15-year, 5.875 percent fixed-rate mortgage for a 10-year loan at 5.125 percent. Her monthly payment went up by $268 because she is paying off her mortgage over a shorter period. But the savings over the life of the loan total $27,624.

The other staffer received no offer in the mail, but she was also a Well Fargo customer, so she called about the program. She was able to trade in her 30-year 6.875 percent mortgage for a 15-year loan at 5.375 percent for a total savings of $120,604. To get the better rate, staffers merely had to sign a neatly packaged stack of documents, have them notarized, and mail them back.

Is there a downside to these gift-wrapped loans? "You won't necessarily get the lowest rate in the marketplace," Gumbinger says, "but for a couple of signatures, you get an improvement in your monthly payment with limited grief."

Before you sign on the dotted line, review all loan documents to make sure the lender isn't sneaking in any fees or penalties (some lenders may charge several hundred dollars) or changing the terms of your loan. Also, it's certainly worth checking the rates on traditional refinancing deals so you can see how they compare. Just don't forget to factor in the costs and the hassles of working with a new lender. A traditional refinancing typically costs up to 3 percent of the loan amount.

Here are three more easy moves that can save you many thousands of dollars on your mortgage:

• Refinance but pay the old amount. With your new lower rate you'll be making a lower payment, but by sticking with your previous payment the loan will disappear faster. Say a couple refinanced a 30-year mortgage that has a balance of $192,500 and 27 years left on the loan. By swapping their 6.25 percent loan for one at 5.75 percent, the borrowers will see their payments drop from $1,231 a month to $1,123, says John M. Smith, a mortgage broker and financial planner with Old Mission Mortgage in San Diego. But check out what happens if the couple keep mailing in checks for $1,231: Their mortgage ends 34 months early and they save a total of $42,817 over the life of the loan.
  

• Make an extra payment. Depending on the rate and the remaining term, you can shave several years off your mortgage simply by writing just one extra check a year. (Lenders might urge you to sign up for a formal biweekly-payment plan that typically costs a few hundred dollars, which accomplishes about the same thing. But such programs hold you to the extra payments so you lose the flexibility of paying more only if you wish.) If you can't afford one extra payment a year, then try rounding up when writing mortgage checks. If you owe $1,351 a month, write a monthly check for $1,400. Every extra amount you pay goes directly to reducing principal.
  

• Take out a shorter-term loan. When refinancing, it's easy to focus on your new low monthly payment instead of looking at the big picture: the total payment over the life of the loan. Grabbing a lower rate can actually turn out to be a costly mistake if it requires you to make many more years of mortgage payments.
  

Take the example of the homeowners with the $192,500 balance above. Say they decide to refinance their 30-year fixed-rate loan, with 27 years remaining, with a new 30-year mortgage, but they don't stick to the previous loan's payment schedule. The couple cut their interest rate by a half-percentage point and save $108 a month, but they also reset the mortgage back to 30 years. Because the new loan adds three years of payments, the couple would ultimately pay an extra $5,447 in interest.

The moral of the story: Serial refinancing only saves you money if you pay less over the life of the loan. So you're better off taking advantage of low rates and refinancing to a shorter-term loan that comes with low or no closing costs. Yes, you can get one. You just have to ask.