Getting Rid Of Private Mortgage Insurance
If you didnt put 20% down on your home when you bought it, youre probably paying for private mortgage insurance as part of your monthly payment. PMI protects your lender in case you default on your loan.
Getting rid of PMI doesnt necessarily require a refinance. Once you hit 20% equity in your home, you can ask your lender to remove PMI. There are a few things to keep in mind about this:
- If youve hit 20% equity as a result of your homes value increasing or making extra payments, your lender will probably require an appraisal.
- If youve hit 20% equity on your regular payment schedule , your lender wont require any appraisal.
- Once you hit 22% equity according to your regular payment schedule, your lender must automatically cancel PMI from your loan.
If 20% equity is still out of reach, a refinance with lender-paid mortgage insurance might be a way to get rid of monthly PMI payments. With LPMI, you can either pay for PMI upfront in a lump sum or opt for a slightly higher interest rate. This allows you to save money since mortgage interest is tax-deductible, but PMI isnt.
Federal Loan Modification Programs
If youre undergoing a financial hardship and need to reduce your mortgage payment as a result, there are a few federal loan modification programs to choose from. They may be available through your lender, but you must meet certain eligibility requirements in order to reduce your mortgage payments short term or long term.
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Cutting Down Payments On Shared Ownership Properties
If you own your property through a shared ownership scheme, you will usually make a monthly payment towards your mortgage and a rent payment to a landlord. This is often a housing association, or some other kind of social landlord.
If youre having money troubles, you may be able to reduce your mortgage payments by selling back some of your ownership of the property to the landlord.
This is called flexible tenure. Not all shared ownerships schemes offer flexible tenure so you will need to contact your landlord to check if this is available. You will have to show that you’ve explored all other options first.
There may be other options available to help you sort out your mortgage or rent arrears.
If you have trouble in meeting your mortgage or rent payments or you are already in debt, you should get help straight away from an experienced debt adviser. A Citizens Advice Bureau should be able to help. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Benefits Of A Lower Monthly Mortgage Payment
The main advantage of lowering your monthly mortgage payment is that allows you additional household cash flow that can be used for several things, says Cindy Laffey, branch partner and mortgage planner at Inlanta Mortgage in Pewaukee, WI.
Laffey explains that saving on your mortgage can allow you to:
- Pay off other higher interest rate loans and credit cards faster
- Build a nest egg of savings for unexpected expenses and home repairs
- Increase savings for education and/or retirement
- Better managing increasing costs for property taxes and homeowners insurance
If you need some extra cash flow each month for these reasons or any other refinancing your mortgage could be a huge help.
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Refinance For Permanent Relief
When the rates are right, refinancing your mortgage can lock in payment relief for the life of your loan. Have you noticed? In the spring of 2020, rates have never never, never, NEVER! been better.
If it seems the forces of nature and human discontent aimed to knock the economy off its axis, one of the areas it missed is mortgage interest rates. As billions of dollars seeking safety in the COVID-19 storm poured into 10-year U.S. Treasury notes, the return sank to record-low territory, hovering much of the time below 0.7%.
Mortgage rates, which are tied to the 10-year Treasury, tumbled, too. Week after week through late winter into June, Freddie Mac, Fannie Mae, and the Mortgage Bankers Association reported one record-low rate after another. The upshot: Refinancing accounted for two-thirds of all mortgage activity.
And, reported Freddie Mac Chief Economist Sam Khater, the average refinanced loan balance shrunk in May by $70,000 meaning its not just high-end homeowners who see the benefits of refinancing this coronavirus share-the-wealth plot twist means opportunity for homeowners of modest means, too.
Whether rates will drop even further or suddenly rebound is anybodys guess. It bears noting, however, that with plummeting interest rates and surging applications to refinance, lenders are ramping up their qualifying standards. Expect to encounter tighter income, credit-score, and down-payment conditions.
A variety of ways exist to refinance. Lets have a look.
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Costs Of Property Tax
Property taxes are collected by the lender and then paid into a specific account, usually known as an escrow or impound account, at the end of each year and are often included in a monthly mortgage payment. On behalf of the homeowners, the taxes are paid to the government at the end of the year.
The amount you owe in property taxes is determined by local tax rates and the homes value. Therefore, the lenders estimate of how much a homeowner will have to pay may be greater or less than the actual amount owed, resulting in a credit or a bill at tax time.
Improve Your Credit Score
Lenders calculate the interest rate on a mortgage using several factors, including your . Improving your credit score can help you get a lower interest rate and save money on your monthly payment.
Some basic ways to improve your credit score include:
- Pay debts on time. Late payments can ding your credit score, so youâll want to pay bills on time, especially if youâre applying for a mortgage in the near future. A good strategy for avoiding late payments is to set up automatic payments, which takes human error â or forgetfulness â out of the equation.
- Use less of your available credit. Lenders look at your credit utilization ratio to see how much of your credit youâre using. This figure accounts for about 30% of your credit score. To calculate it, divide your total debts by your total credit limit. A common rule of thumb is to keep your credit utilization ratio at 30% or less.
- Seek out a credit counselor. There are many credit counseling agencies that can help you improve your score if you have poor credit. These agencies are typically nonprofit groups that help you assess your situation and develop a plan for improving your credit. You can find nonprofit credit counseling organizations through the National Foundation for Credit Counseling. Be sure to check the credentials of the agency. The Department of Justice has a page devoted to accredited credit repair agencies.
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Make One Extra Mortgage Payment Each Year
Making an extra mortgage payment each year could reduce the term of your loan significantly.
The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, youll have paid the equivalent of an extra payment by the end of the year.
Seek A Tax Reassessment
Homeowners may forget the role taxes play in how much money goes into escrow. Review your annual property appraisal to determine whether it fairly reflects the value of your property.
Visit the property assessors website to review the values assigned other properties near you that are comparable to your home. If they are assessed for less, or if recent sales suggest property values are dropping, you can, and should, appeal your assessment.
Instructions for how to appeal your appraisal also can be found on the property assessors website.
Remember: The assessed value of your property isnt its market-appraised value. The tax assessor establishes the assessed value independently. If the collector refuses to reassess your home and you have evidence that the assessment is inflated, you can file a complaint with your county government and can request a hearing with your states Board of Equalization.
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Switch To An Adjustable
An adjustable-rate mortgage offers a lower rate for a set time running between one month and 10 years, which may come in handy if you need to temporarily reduce your mortgage payment. Just be sure you understand the adjustments and have a plan for handling future monthly payment increases.
One tip: If you plan to sell your home in the near future, you can use your monthly ARM savings to pay down your loan balance each month, which will put more cash in your pocket when its time to sell.
Ways To Lower Your Mortgage Payment
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
The most common way to lower your mortgage payment is to refinance your current home loan or make a bigger down payment if youre buying a home. However, there are other ways to reduce what is usually your largest monthly expense.
Well explain those options below to help you find a good fit to shrink your monthly housing expense.
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Refinance To A Lower Rate
Refinancing your mortgage to take advantage of lower interest rates is one way to lower your monthly payment.
Youll need adequate home equity to qualify for a refinance, in addition to meeting other requirements. Equity is the market value of your home minus what you still owe on the mortgage. Youll also need to be prepared to pay refinance closing costs.
Traditional guidance suggests refinancing is worth it if you can lower your rate by 1 percentage point. Its possible to meaningfully lower your monthly payment with a 0.5- to 0.75-point decrease, depending on how much the refinance will cost you and when youll reach the break-even point on those costs.
» MORE: How and why to refinance your mortgage
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Mortgage rates are at their highest level in years and expected to keep rising. It is more important than ever to check your rates with multiple lenders to secure the best rate possible while minimizing fees. Even a small difference in your rate could shave hundreds off your monthly payment.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They dont charge origination or lender fees .
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How Long To Pay Off Mortgage With Extra Payments Calculator
Ultimately, significant principal reduction cuts years off your mortgage term. Extra payments count even after 5 or 7 years into the loan term. If the first few years have passed, its still better to keep making extra payments. Another technique is to make mortgage payments every two weeks. This is called a biweekly payment plan.
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You Can Make An Additional Payment Each Year
You can reduce the amount you pay each month by making an additional mortgage payment every year if youre able. These extra payments will be applied to your principal and not the interest. This reduces your balance and also means you wont have to pay interest for that month.
The Savings $47,000
You can reduce your loans term by making one extra payment of $1199 each year and saving as much as $47,000 on interest payments.
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Switch To A Cheaper Deal
Even if you avoided the SVR and got yourself a deal, its still worth comparing rates to see if you could save money by switching, especially if the value of your home has increased. When working out if you can save, dont forget to account for any extra costs such as Early Repayment Charges , valuation or product fees. But if the new deal is good enough, you could save money every month.
Paying Off Your Mortgage Sooner
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Should You Recast Your Mortgage
Recasting your mortgage will not lower your interest rate, unlike when you refinance. You also won’t change your repayment timeline. If you had 20 years left on your loan, you still will after recasting.
But it can be a good option if you receive a financial windfall and you want to use it to lower the amount you pay on your home loan each month.
You won’t have to pay closing costs for recasting as you would with refinancing, and the lower monthly mortgage payments that result could give you more wiggle room each month for the remainder of your payoff period.
You should think carefully about whether this approach makes sense for you or whether a refinance might be a better approach to reduce what you owe your mortgage lender each month.
Get A More Accurate Estimate
Get pre-qualified by a lender to see an even more accurate estimate of your monthly mortgage payment.
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How much house can you afford? Use our affordability calculator to estimate what you can comfortably spend on your new home.
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Interested in refinancing your existing mortgage? Use our refinance calculator to see if refinancing makes sense for you.
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Your debt-to-income ratio helps determine if you would qualify for a mortgage. Use our DTI calculator to see if youre in the right range.
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Use our VA home loan calculator to estimate payments for a VA loan for qualifying veterans, active military, and military families.
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Fixed & Variable Rates
The standard variable rate is the basic interest rate lenders use for mortgages. Each lender sets their default SVR. Its the default rate mortgages revert to after the introductory period of a loan, which is usually 2 to 5 years. SVR mortgages usually have higher interest rates than other mortgage options.
Standard variable rates move based on fluctuations in the Bank of England base rate. When rates reset higher, borrowers must be prepared to make higher monthly payments. To avoid reverting to the SVR, borrowers would remortgage to a new deal with a favourable rate.
In recent years, standard variable rates have been on the rise. Because of this, many consumers find fixed-rate mortgage options more attractive. According to the Bank of England, since 2016, fixed-rate options are more preferred by borrowers, especially first-time homebuyers.
In the third quarter of 2020, 91.2% of all mortgages used fixed-rate loans. The average fixed-rate mortgage was priced at 1.91%. In contrast, the average variable rate mortgage was priced at 1.85%, bringing the overall market average to 1.91%.
What is a Fixed Rate?
The UK government provides subsidy programs in Help to Buy and Help to Buy London. These government schemes offer mortgage deposit assistance. However, few lenders in the UK provide loans which have fixed rates extending beyond 5 years.
Which Loans Structures Do Most Buyers Prefer?
Only 1 in 50 mortgages come with a fixed rate longer than 5 years.
