How to Save More Than €50K on Your Mortgage

In this blog, I’m going to share with you a simple financial tip that might save you € 50.000,00 on your house mortgage if you change the way you make mortgage repayments.

We are going to go over the basics of mortgage payments and then see what you currently pay over the entire term of your mortgage using an example. Later on, we will see how making a simple change in the way you make mortgage repayments can do wonders for you in terms of saving real dollars (or your favorite currency).

Calculate Your Current Mortgage Costs

You are looking at the following terms:

• Total mortgage amount: € 420.000,00

• Monthly payment: € 2.153,11

• Total repayable amount: € 775.118,28

Understanding How Mortgage Interest Works: A Real Example

Let me tell you the story of Jake, an automotive engineer in his early thirties. Jake just bought the house of his dreams in a pleasant neighborhood. Yeah, Jake got lucky!

To make this house his home Jake turned to a mortgage lender to help out with financing the house.

Here are the terms of the mortgage

• € 420.000,00
• For 30 years
• At 4.6% interest rate (times are tough you know 😅)

Jake is looking at a monthly payment of € 2.153,11

In 30 years (the tenure of the mortgage), Jake will pay a total of € 775.118,28, of which € 355.118,28 will be interest, making the total payout 1.8 times the initial amount.

That is quite some money, huh! If you look closely at the interest paid, it is almost the same amount (or 84.55%) as what he took out as the mortgage in the first place.

This seems a bit harsh or unfair to say the least, but hey, that’s compound interest at play—the 8th wonder of the world! - “Albert Einstein”

What if I told you, or Jake in this case, that he could save a significant amount while paying off his mortgage? Well, that’s the title of the blog, so let’s get into it.

3 Proven Ways to Reduce Mortgage Costs and Pay Off Your Home Loan Faster

Strategy 1: Make Extra Monthly Payments to Reduce Mortgage Interest

Jake pays € 2.153,11 monthly towards his house mortgage. If Jake were to simple pay € 179,43 more, that is € 2.332,53 instead of € 2.153,11. Jake will payout his 30 year mortgage in 25 years & 7 months! Yeah, you read it correct.

4 Years and 5 months early!

By simply making this extra payment each month, he would save a big amount: € 60.637,69!

And how exactly did I find this magic number, you might ask? I simply divide the current monthly payment by 12 (the number of months in a year), which is € 2.153,11 / 12, resulting in € 179,43. Of course, it can be a different amount if Jake prefers.

Strategy 2: The 13th Payment Method — Annual Extra Mortgage Payment

What if Jake does not like to pay € 179,43 extra each month for whatever reason? Maybe he is not sure if he will need it for something else (he probably spent it on buying some games 🙈)

Then I would suggest Jake keep this money aside (maybe he needs it later) or save whatever he can at the end of each month and use that money to pay the 13th payment.

I know, I know, there are only 12 months in a year, Jake. But what I’m referring to is making one extra monthly repayment at the end of the year.

So, an extra, € 2.153,11

By simply making this extra payment each year, he would save a big amount: € 58.133,87

Jake will payout his 30 year mortgage in 25 years & 8 months!

4 Years and 4 months early!

You might be thinking, while this is good, the amount saved and time saved this time are less than Tactic 1.

That is correct, because this time Jake is paying the extra at the end of the year, after waiting for 12 months during which interest has already been charged.

Strategy 3: Start-of-Year Extra Payment for Maximum Savings

So, let’s turn it around a bit. Let’s begin the year by paying that extra monthly payment.

By simply making € 2.153,11 of extra payment each year, he would save big time: € 62.440,08!!!

Jake will payout his 30 year mortgage in 25 years & 5 months !

4 Years and 7 months early!

That feels good! Isn’t it. You are welcome Jake 😇

Bonus Strategy: Lump Sum Payment to Drastically Cut Mortgage Interest

Reading all this, you might be thinking, okay, I see the point pay early and pay less. While at it, I might as well pay € 40.000,00 at the very first month.

To that, I would say, go ahead, well done! 🖖

Let’s talk numbers:

By simply making this extra payment of € 40.000,00 at the beginning, he would save a big € 99.943,88!

Jake will payout his 30 year mortgage in 24 years & 8 months!

5 Years and 4 months early!

That’s just excellent!

That seems obvious! What If I had do it all by myself. duhhh 🙄 But, obviously, I do not have that kind of savings or a rich uncle. That is precisely why I talked about these three tactics. Anyone, with a little bit of financial discipline can do it and save themselves Big Amount!

You might be considering doing a higher fixed monthly payment. Be cautious!!

While it definitely helps with saving more in the long run, it could be a pitfall as it means less flexibility. Stretching your limits (pocket) is not a stress-free experience sometimes. 😓

Therefore, keep it flexible. Even if you cannot make the extra (re)payment every month or every year (depending on which Tactic you choose). You can save some by doing some, with no commitments or deadlines. 🙂