When your mortgage payment eats up most of your monthly income, it can become draining. Not being able to make ends meet for daily living expenses can be stressful. Luckily, lowering your mortgage payment is not as hard as it sounds. There are simple and complex ways to lower your payment. You choose what works for you. In the end, you get a lower payment and more money in your pocket.
Refinance your Mortgage
Refinancing is the most common way to lower your mortgage payment. Of course, the loan term and program you choose determines if you really lower your payment. A few simple ways to make this happen include:
- Refinance into a longer term – The more months the bank amortizes your mortgage over, the lower your payment. Of course, this means you will be older when you finally pay your mortgage off, so keep this in mind. Do you want to have a mortgage payment after you retire?
- Refinance into a lower interest rate – A lower rate could save you hundreds of dollars a month It just depends on how much lower the rate is from your original rate. Watch the term you choose when you lower the rate, though. Let’s say you originally had a 30-year term and you already paid 7 years on it. If you refinance into another 30-year term, it is as if those 7 years you just made payments never existed.
A good rule of thumb is if you have not hit the halfway point of your term, refinancing into a lower ratee will help your case. However, if you are already at the halfway point, you now pay more principal than interest. You probably should not start over at this point. Instead, use a different tactic to lower your mortgage payment.
Discuss Removing PMI
If you did not put 20% down on the home when you purchased it, you likely pay Private Mortgage Insurance if you have a conventional loan. Luckily, you can remove PMI once you hit a certain point in the mortgage. Your loan papers likely state that you can ask your lender for PMI removal once you owe less than 80% of the value of the home. Your closing papers also included an amortization table that tells you when you hit that point. However, if you know the value of your home appreciated and you owe less than 80% now, talk to your lender. They may have a procedure that allows early removal of PMI if you pay for a new appraisal.
If you did not take out a conventional loan and instead have an FHA loan, you cannot ask for removal of the PMI. In this case, you must refinance into a conventional loan. Before you pay the closing costs and go through the work, though, find out your loan-to-value ratio. A quick search online can let you know the approximate value of your home. Take the amount of the outstanding principal of your loan and divide it by the value. If it is less than 80%, find a lender that will refinance your loan into a conventional one.
Fight Your Taxes
Sometimes lowering your mortgage payment has nothing to do with the mortgage itself. Instead, you may look at your real estate taxes. If you escrow your taxes, you pay 1/12th of your annual tax bill each month. This can add a significant amount to your mortgage payment. If you think your tax assessment is too high for your home and/or area, discuss your options with the county treasurer. Oftentimes they have a method you can use to “fight” your taxes. It usually takes quite a bit of legwork and patience on your part, but the end result is often worth it.
Make Extra Payments
You always have the option to pay more principal on your mortgage. You can do this monthly, sporadically, or even as one lump sum. Sit down and figure out what you can afford. Some people make 1/12th of a full mortgage payment each month in addition to the regular payment. At the end of the year, these borrowers make one extra mortgage payment. This lowers the principal. If you decide to refinance in the future, you have less to refinance, which may result in a lower payment.
Other ways to pay extra towards your principal include putting any large windfalls towards the principal, such as tax refunds or bonuses. Otherwise, you can just pay extra towards the principal whenever you are able to do so. Either way, you end up reducing the principal, which gives you a lower mortgage payment down the road if you decide to refinance.
Ask for a Loan Modification
The last resort method to lower your mortgage payment is to ask for a loan modification. You have to do this with your current lender. Some lenders offer government loan modification programs. Others have their own plans in place. In order to qualify, you must be honest with your lender. Let them know the difficulty you have in affording your mortgage payments. Even if you pay them on time, if they pose financial difficulty for you, talk to your lender. The more honest you are with them, the more they can help you. Some lenders offer a refinance at a much lower interest rate while others extend the term to make your payments lower and more affordable.
Lowering your mortgage payment does not have to be as overwhelming as it sounds. You have many options at your disposal. You need to have an open mind and be honest about your situation. Your lender cannot help you if you don’t tell them what you need. Explore each option to determine which suits your situation best. Only you know exactly what you need that would help you lower your payment enough to make it affordable for you.