Apr 05 2022

How to Lower Your Monthly Payment by Refinancing

Are you struggling with high monthly mortgage payments? Let’s look at the options you have for monthly savings.

Are you struggling with high monthly mortgage payments? Maybe you’d just like some extra cash to spend each month. Then you should know that there are some simple ways to cut your monthly costs through mortgage refinancing. And with today’s attractive interest rates, refinancing may make sense more now than ever. Let’s look at the options you have for monthly savings. 

When Refinancing Makes Financial Sense 

As a rule of thumb, if you can lower your current interest rate between 0.5% and 1%, then refinancing your mortgage usually makes sense. Does a 1% reduction really make that much of a difference? Yes. Let’s take a hypothetical existing 30-year mortgage for $225,000 with a fixed rate of 4%. Then refinanced at 3% after three years. Just calculating by interest and principal, the monthly payment at 4% would be $1,074 and after refinancing at 3%, it would be $846. That’s a difference of $228 per month, or an annual savings of $2,736. 

Monthly Savings with Mortgage Length 

Beyond simply getting a new interest rate on your mortgage, you may also consider lengthening the term when you refinance; by going from a 15-year mortgage to a 30-year one, you can significantly lower your monthly payments. It makes sense if you plan to stay in your home for a while. And consider that the savings don’t have to be just cash in pocket — you could invest that money. For example, earning, say, 8% interest by investing that monthly savings nicely offsets the lower rate of interest you pay on the refinance loan. 

What about rising interest rates? 

Yes, the historically low interest rates we’ve seen in the recent past have been going up; the rise was inevitable. And you may look at these increases and assume that refinancing won’t help you save money, or at least not enough money to make the effort worthwhile. But that’s simply not true for millions of Americans who, indeed, would benefit from refinancing.  

Recent findings from Black Knight show that close to four million homeowners in the United States would be able to lower their monthly payments by refinancing their mortgages. The data and analytics firm identifies prime candidates for refinancing as homeowners who have 30-year fixed-rate mortgages, loan-to-value ratios that are less than 80%, with credit scores of 720 and higher. These homeowners should be able to cut 0.75% or more in interest on their mortgage loans. 

It’s worth noting that the conditions for refinancing approval that Black Knight cites may be stricter than those of some lenders. With more lenient prerequisites, the number of borrowers who could reduce their monthly mortgage payments through refinancing jumps to nearly seven million people, according to Black Knight. 

Figure Out When the Savings Really Start 

If you are thinking about refinancing, you’ll want to determine your break-even point, when the costs of the new loan are surpassed by the savings. These refinancing costs are often anywhere from 2% to 5% of the loan’s total amount. Say, for example, that refinancing reduces your monthly payments by $100 and you paid $5,000 in closing costs. It will take 50 months (just over four years) to recoup the closing costs: that’s your break-even point when the saving begins. 

Save With VA Streamline Refinancing 

If you’ve already qualified for a VA Loan, you know it comes with big benefits, such as no down payment and no private mortgage insurance. But there’s another plus: an Interest Rate Reduction Refinance Loan, or IRRRL. Commonly called VA streamline refinancing, an IRRL is similar to refinancing for conventional mortgage loans. But with fewer restrictions than there are with other types of refinancing. 

There’s a reason they call it “streamlined” — the road to approval is generally smooth with few obstacles. With a VA IRRRL, there’s no need to get an appraisal as you do with some other refinancing programs, and there’s often no need for a credit check, as credit underwriting packages aren’t required by IRRRLs. So even if your credit has taken a few hits since initially getting approved for your VA Loan, approval for an IRRRL is still possible. Plus, the funding fee and the closing costs of the refinancing can get rolled into the mortgage. 

Steps to Take Right Now 

As you approach refinancing, you might consider these first financial steps to get yourself prepared. 

  • Make a goal. Are you looking to move from an adjustable-rate to a fixed-rate mortgage? Or go from an FHA mortgage to a conventional loan? Beyond saving money each month, what you wish to achieve through refinancing should be clear from the start.  
  • Determine your home’s equity. Your lender will look at your home equity during the approval process, so you should, too. The more equity you have in your home, the less of a risk you are to lenders, and the better your refinancing terms may ultimately be. To figure out your equity, first determine your home’s market value; an online home value estimator will get you close. Subtract what you owe on your mortgage from that amount to determine your equity. If you have more than 20% equity, you’re well-positioned for refinancing. 
  • Check your credit report. Lenders almost always look at credit scores in evaluating applications for refinancing, so you don’t want any surprises. You can get a free credit report from the credit reporting agencies TransUnion, Equifax, and Experian. And know that you have the right to contest any errors you may find. 
  • Gather the needed paperwork. Your lender is going to want some financial information from you, so make sure you have the paperwork for your current mortgage. You’ll want to get your W-2s from the past two years, and your most recent pay stubs, or bank statements if you are self-employed or have non-traditional income. 

Whether you stick with your loan’s current length, or stretch things out to pay less each month, City Lending is here with a range of refinancing programs that could very well lower your monthly payments. 

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


Content intended only for the use of citylendinginc.com

Written by Alicia Christopher

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