How to lower your monthly mortgage payment
Money is tight and you are looking for expenses to reduce. Your mortgage payment is the biggest chunk of your paycheck, so that seems like a logical place to start.
Here are some options that can help you lower your monthly mortgage payment and some important considerations about each.
Refinancing at a lower rate
Refinancing your mortgage to take advantage of a lower interest rate is one way to reduce your monthly payment.
You will need the equity in your home to be eligible for refinancing, in addition to meeting other requirements. Equity is the market value of your home minus what you still owe on the mortgage. You will also need to be prepared to pay refinance closing costs.
Traditional guidelines suggest refinancing is worth it if you can reduce your rate by 1 percentage point. It is possible to significantly reduce your monthly payment with a decrease of 0.5 to 0.75 points, depending on the cost of refinancing and when you reach the break even on these costs.
Saving more time to pay off is another popular reason for refinancing. If you’ve made payments on a 30-year loan for a few years, for example, you can refinance the rest to 30 years. This would likely result in a lower monthly payment amount.
But refinance into another 30-year mortgage This means that you will accumulate additional interest charges, especially if you have been making monthly payments for a long time. So, carefully weigh the pros and cons of this option to make sure it’s the best way to lower your monthly mortgage payments.
Apply for mortgage forbearance
If you’re experiencing a short-term financial setback and are worried that you won’t be able to pay your monthly mortgage payment, a forbearance agreement may provide temporary relief.
“Forbearance can temporarily reduce your mortgage payments in the event of short-term financial hardship.“
During forbearance of mortgage, your lender may agree to suspend or reduce your mortgage payments for a period of time. At the end of the forbearance period, payments resume normally and you may need to make up the missing amount in some way.
If you are interested in forbearance, it is important to contact your lender before you miss a payment, not after.
Request a loan modification
If you’ve been in serious financial difficulty and your mortgage payment is no longer affordable, a loan modification may be an option. This is when a lender restructures your loan in some way or another to lower the monthly payment.
You don’t have to be behind on mortgage payments to apply for a loan modification from your lender. In fact, if you are facing an impending reduction in your income – for example, due to the loss of a job or retirement – it is a good idea to contact your lender in advance about a modification. possible loan.
Eliminate mortgage insurance
All FHA loans and some conventional loans have an additional cost – mortgage insurance. Eliminating your mortgage insurance premium translates into lower monthly payments.
To cancel private mortgage loan insurance (PMI) – required on conventional loans when the down payment is less than 20% – you will need to contact your lender and prove that you have sufficient equity. You can also refinance get rid of PMI.