Extend Your Repayment Term
One of the simplest ways to reduce your monthly mortgage payments is by extending the duration of your mortgage term. Even though this way the overall cost of the mortgage over the entire tenure increases, your monthly financial pressure will be eased and you can feel more comfortable about your financial situation.
Remove Private Mortgage Insurance
You might also be able to lower your mortgage payment without refinancing. Eliminating private mortgage insurance , which protects the lender, can help lower your monthly payments.
You might be paying PMI if your down payment was less than 20% on a conventional loan, or have an FHA loan or USDA backed loan which both require PMI throughout the life of the loan. Either way, you might be able to ditch that PMI.
Heres how to get rid of PMI:
- Conventional loan: Contact your lender. PMI should automatically fall off once you have 22% equity in your home. But you might be able to ask your lender to remove PMI when youre scheduled to hit 80% LTV. This could happen earlier than anticipated if your home value has increased substantially.
- FHA or USDA loan: Youll need to refinance into a conventional loan, then ask your lender to drop PMI when you have 20% equity .
Read On: How to Get Rid of Private Mortgage Insurance
How Much Does A Down Payment Lower A Mortgage Payment
Your down payment has a direct impact on your loan terms and the amount you will pay each month. For starters, if you cant put 20% or more down, you will have to pay private mortgage insurance . Ultimately, the more you put down, the smaller your principal loan amount, and therefore, the lower your payments. For example, using a mortgage calculator, if you put down $60,000 on a $300,000 home, at 4% interest, your monthly principal and interest payment would be $1145.80. But if you put down $80,000, the monthly payment would be $1050.31. You dont necessarily want to use all of your cash toward a down payment keep some reserves available for repairs, improvements, and emergencies.
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Get Rid Of Or Lower Your Pmi
If you bought your house and put down less than 20% as a down payment, you are probably paying mortgage insurance on top of your regular mortgage payment. Over the life of a loan, this can cost you thousands of dollars.
The good news is there are ways you can get rid of PMI.
Keep making payments. The first is to keep making payments on your current mortgage until your principal loan amount reaches 78% of your original balance. You wont have to do anything, because federal law requires lenders to remove mortgage insurance once you reach that milestone.
Request to have mortgage insurance removed. The other option is to request that your lender remove the mortgage insurance because your house has gone up in value enough to have 20% equity. Equity is the difference between your loan balance and the value of your home. Youll probably have to pay for an appraisal, but it may be worth the expense if you can permanently remove mortgage insurance from your monthly payment.
Refinance To Change Terms
Mortgages are available in both variable and fixed interest rates. In the long run fixed interest rates offer stability and security, which is why they’re a popular choice for many. However, if interest rates are falling and are expected to continue to stay low, then it may be a good idea to change the type of rate that applies to your mortgage. You can do this through mortgage refinance.
A lower variable rate can lower your monthly payments and give a boost to your monthly savings. However, due diligence is required in this regard because if rates begin to rise you’ll end up paying far more than what you were paying under the fixed rate.
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Drop Pmi From Your Home Loan
While PMI can be dropped from your home loan automatically once you have at least 22% in equity, you may have a chance to stop paying PMI ahead of that if youre willing to pay for an appraisal in order to prove you now have at least 20% in equity in your property. The advantage of going down this route is that you dont have to go through the hassle of refinancing in order to lower your monthly payment.
However, if you know you have 20% equity in your home, you might prefer to refinance with a new lender altogether, perhaps to stack several of the above techniques into a new mortgage. In this case, having 20% equity in your property could leave you with a new home loan with no PMI and potentially even better rates and terms.
Should You Get Rid Of Private Mortgage Insurance For A Lower Mortgage Payment
If you bought a house with less than 20 percent of the money down, you probably have to pay something called private mortgage insurance . You can eliminate PMI without refinancing. All you have to do is pay off at least 22 percent of the homes equity and it will fall off a conventional home loan.
If you have an FHA or USDA loan, you will need to refinance to get rid of PMI and reduce your monthly mortgage payments.
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When You Might Not Want To Refinance
Although refinancing is one of the most common ways to significantly lower your mortgage payment, its not always the right solution. For example, refinancing might not be a good idea if:
- You dont think youll meet the qualifications. Refinancing involves a thorough loan-application process, and borrowers must meet stringent credit and income standards.
- You already have an acceptable interest rate. If you cant lower your rate enough to offset the closing costs and still benefit from a lower payment, refinancing probably isnt the best route.
- You plan to move in the near future. Because closing costs can be significant, make sure youll remain in the home at least long enough to recoup that amount.
If youre having trouble making your mortgage payments, dont hesitate to reach out to your lender to discuss your options. Many lenders have hardship programs that will provide relief on a temporary basis. You may even qualify for loan modification, which could reduce your monthly payment.
Refinance To Get A Lower Interest Rate
Even if you dont want to dramatically change your repayment timeline, you can still lower your payment by refinancing if you can lock in a lower interest rate than you have on your current mortgage. The impact of a lower interest rate can be dramatic when it comes to your monthly payment, although the specifics vary based on your situation.
Consider this example: A 30-year home loan for $300,000 with an APR of 4% would require a monthly principal and interest payment of $1,432. If you can repay the same loan amount over the same term but at a 3% APR, the monthly payment drops to $1,265 per month.
While interest rates are no longer at the record lows we saw in 2020, you can still get rates in the low 3% range on a 30-year mortgage. Depending on your current interest rate, that could still make a big difference in your monthly payment, though its important to keep the costs of refinancing in mind to make sure youre actually saving money in the long run.
For people who have already paid 10 or more years on a 30-year mortgage, theres another way to lower your interest rate switch to a shorter loan. Interest rates are typically lower on shorter home loans, so if youre currently 10 years into a 30-year mortgage, you could potentially refinance into a 20-year home loan to secure a lower interest rate and payment and still pay off your house in a total of 30 years.
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Have Your Homes Tax Assessment Redone
If your home loan has an escrow, property taxes may take up a noticeable chunk of your mortgage payment each month.
Property taxes are based on each countys tax assessment of how much your home or land are worth. Some homes in urban areas are overvalued, causing the taxes to be high. The assessment is different from an appraisal since it is conducted by your county for tax purposes only.
As a homeowner, you can request to have the assessment done again by filing with your county and requesting a hearing with the State Board of Equalization. If the protest is approved, your homeowners taxes will decrease along with your monthly mortgage payment.
Consider Refinancing Your Mortgage
Refinancing a mortgage is when you take out a new mortgage to replace your current loan. Refinancing can help you save money and lower your monthly payment if you can qualify for a lower interest rate or a mortgage without PMI. You may also be able to lower your monthly payment by refinancing to a loan with a longer term.
For example, if you have 22 years left on your current mortgage and refinance to a 30-year mortgage, spreading out the payments over an extra eight years will lower your monthly payment amountat a cost. Depending on rates when you refinance, you may have to accept a higher interest rate than you currently have, and those lower monthly payments will also cost you an extra eight years in interest.
You’ll also need to account for the closing costs on the new loan when you refinance. It can take several years to break even, so refinancing might not be a good idea if you plan on moving soon.
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Use A Streamline Refinance
A fourth choice is to consider a Streamline Refinance, available on many FHA, VA, and USDA home loans.
With a Streamline Refinance, the lender is not obligated to recheck your income, credit, or employment. That means the loan can close much more quickly and possibly avoid a lot of paperwork.
Whats more, with a Streamline refi, you can skip the home appraisal. That means you can refinance with little to no home equity accrued and you may lock in a lower rate than you would with other types of low refinancing.
With a Streamline Refinance, the lender is usually not allowed to add closing costs to the loan balance, and the interest rate and monthly payment must be lowered enough to make it worthwhile for the borrower, adds Derks.
Essentially, a Streamline refi allows the borrower to obtain a lower rate and payment for very little cost and very little effort, she explains.
Choose An Adjustable Rate Mortgage
When mortgage rates are super low, you might consider refinancing to an adjustable-rate mortgage to get a low initial rate and lower your mortgage payment. But before getting an ARM, consider if you can afford higher payments in the future. If mortgage rates rise before your rate resets, then the rate on your mortgage will increase, along with your mortgage payment.
Remember:Find out if refinancing is right for you
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Apply For Mortgage Forbearance
If you experience a short-term financial setback and worry youll be unable to afford your monthly mortgage payment, a forbearance agreement may provide temporary relief.
Forbearance can temporarily lower your mortgage payments during a short-term financial hardship.
During mortgage forbearance, your lender may agree to suspend or lower your mortgage payments for a specific period of time. At the end of the forbearance period, payments resume as normal, and you may have to make up the missed amount in some way.
If youre interested in forbearance, its important to contact your lender before missing a payment, not after.
NerdWallet’s coronavirus resources page tracks the latest developments, including information on loan and payment relief, ways to cope and how to best manage your personal finances.
If you can’t make your full mortgage payment, or you’re worried that you won’t be able to make the payments soon, contact your mortgage servicer immediately. You may be eligible for mortgage forbearance, temporary relief in which the lender allows you to make lower monthly payments, or no payments at all, for a specified time. NerdWallet’s article about mortgage forbearance explains the basics.
See what types of mortgage relief programs are available to homeowners who are worried about making their house payments due to the coronavirus outbreak.
Extend The Term Of Your Mortgage
If a lower payment is your goal, extending the term of your mortgage with a new loan or loan modification can help you get there. A longer mortgage term spreads out the loan balance over more payments.
Heres an example: Lets say you bought your home 10 years ago with a $200,000 30-year-fixed loan. Without accounting for taxes and insurance, your payment, at 4.5% interest, is $1,013.
Now lets say you want to lower your mortgage payment. Since youve been paying on your loan for 10 years, youve reduced the balance to about $160,000. By getting a new 30-year fixed loan, youd spread the smaller balance over 30 years. Your new payment, at the same interest rate, would be just $811. Thats a savings of over $300 a month.
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Contact Your Lender To See If You Can Extend Your Repayment Term
One way to reduce your mortgage payments is by extending your repayment term. If you extend your 10-year mortgage to a 25-year mortgage, your monthly installments will decrease as you now have a lot more time to pay back your loan. Whilst this means you will pay more interest on your mortgage, in the long run, its a solution for those that are struggling financially in any way and need to cut costs in the short term. If you do opt for this, when you are back on a better financial footing, you should contact your lender to increase your payments and therefore reduce the term back down.
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Can I Change My Mortgage Payment Due Date
Your mortgage payment due date will be set when you close on your home. Lenders policies vary regarding your ability to change your due date, but you can always ask. Keep in mind that most loans will have a grace period, meaning you have an additional number of days to make your payment before youll be charged a late fee. Some loans may also allow borrowers to choose biweekly payments.
The Bottom Line On Making Reverse Mortgage Payments
While reverse mortgages can provide a much-needed source of cash for older homeowners, they do so by reducing home equity. Borrowers who wish to shore up their equity may do so â even when none are required. That can make repaying the loan more affordable, and it will be easier to pass on the home to family or more likely for the borrower to have money left over after a sale.
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Is It Better To Overpay Mortgage Monthly Or Lump Sum
If you decide you can’t afford your overpayments, you can reduce or stop them at any time and go back to your original monthly mortgage repayment. Paying a lump sum off your mortgage will save you money on interest and help you clear your mortgage faster than if you spread your overpayments over a number of years.
Switch From An Arm To An Frm
With an Adjustable-Rate Mortgage , you can qualify for significantly lower interest rates and lower monthly payments for a certain time period. After that initial fixed-rate period, the interest rate changes as the federal interest rates fluctuate. It can happen at monthly, quarterly, or yearly intervals.
When the Federal Reserve decides to raise the interest rate, your interest rate goes up too, resulting in high mortgage payments in that particular month/ period. This unpredictable nature of ARM may cause you to spend an extra amount on your mortgage.
The Fixed-Rate Mortgage, on the other hand, has a more stable nature. It ensures that you would be making the same monthly payment until the day you pay off your mortgage. However, FRM has a comparatively high interest rate, but it is fixed, so there is a guarantee that you would not be charged any additional cost.
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Get Rid Of Private Mortgage Insurance
If you put down less than 20% when you bought your home, chances are youre still paying for private mortgage insurance on top of your regular mortgage payment. In the long run this can add tens of thousands of dollars to your loan. Once youve paid enough of your mortgage to gain at least 20% equity in your home, you can speak with your lender about dropping the PMI. While this may require a visit from an appraiser, itll lower your monthly payments if/when its removed so its worth taking the necessary steps to investigate.
