For many homeowners their mortgage payment represents their largest monthly expense. Lowering that payment could mean significant savings month after month, year after year, over the course of time owning the home, or until the mortgage is paid off.
Wondering how you could save on your mortgage payment? Here are a few ideas to look into:
Refinance Your Current Home Loan
Depending on the terms of your existing mortgage and other home financing options available to you, refinancing could be an excellent way to lower your mortgage payment. There are a few possible ways to potentially make this happen:
- Refinance into a loan with a lower mortgage rate.
If current mortgage rates are lower than the rate you are paying now, you may be able to refinance and save. Some programs will allow you to roll the cost of the transaction into the new loan, meaning you would have few out of pocket expenses related to the refinance.
- Refinance into a mortgage with a longer term.
If rates are not low enough relative to your current loan to make a significant difference in your payment, don’t worry, there are other options to consider. If you have been paying on your current home loan for a few years, you could save by refinancing into a new mortgage with a longer loan term. Going from 17 years remaining on the loan to 30 years would likely mean a lower payment each month.
Keep in mind that extending your loan term will generally mean you will pay more in interest over the course of the loan, but for some homeowners this tradeoff may be worth accomplishing the financial goal of lower monthly expenses.
- Refinance into a different loan program.
You may also be able to find a lower rate, and lower payment, on a program that is different from that of your current mortgage. Adjustable rate mortgages have an introductory rate for a period of time that is often lower than the rates available on comparable fixed rate loans. A 3/1 ARM (Adjustable Rate Mortgage) will have that low introductory rate for the first three years of the loan term. 5/1 ARMs, 7/1 ARMs, and 10/1 ARMs have introductory periods of five, seven, and ten years respectively.
At the conclusion of the initial period the rate will begin to adjust up or down according to current market conditions. Homeowners choosing this option should understand they won’t have the security of a fixed rate mortgage once their rate starts to adjust, but this can still be a great option to look at in some scenarios. Perhaps you only plan to own this home for a few more years before selling it. Or it’s important to have lower mortgage payments in the short term because one income earner is staying home with young children or going back to school.
Lower Escrow Payments
If refinancing isn’t an ideal option right now you may still be able to bring down your monthly mortgage payment. In addition to the principal and interest portion of your home loan payment, it likely also includes escrow payments.
This means that your mortgage servicer collects an additional amount each month with your home loan payment, and uses those funds to pay your homeowners insurance, real estate taxes, homeowners association fees and other expenses as applicable when these items come due. If you can lower these fees, you could see a reduction in your monthly mortgage payment.
Shop around for a better deal on your homeowners insurance. If you have had the same policy for some time there may be more affordable options available to you without sacrificing coverage. It may also be possible to lower the annual cost by raising your deducible.
Check with your local jurisdiction to see if there are any options for reducing your property taxes. There are sometimes available courses of action for senior homeowners, low income homeowners, properties used as a primary residence rather than an investment property, and more. If the value of your home has decreased over time this could also impact what you are required to pay in property taxes.
Move to a Less Expensive Home
Downsizing to a less costly home can be an excellent way to permanently lower monthly housing costs, and perhaps end up with a sum of money from the proceeds of the sale as well. This is a popular option among homeowners with grown children who might not need a large home any longer.
Making the move to a less expensive property doesn’t have to mean sacrificing square footage. Consider a neighborhood where homes cost less or even a city or state with a lower cost of living, and lower cost of real estate.
Talk to Your Mortgage Lender
In times of economic hardship a lower monthly mortgage payment might ease the financial burden for a short period of time. For example, if you have experienced a job loss or medical issue that is causing you to worry about being late with your mortgage payment, or missing a payment, the best thing to do is contact your mortgage lender right away.
They may be able to lower your payment for a period of time, so you can make up the difference a few months down the road when the situation has improved. Available options will vary by loan program, servicer, and the borrower’s payment history, but the most important thing is to communicate early before any payments are missed.
As you can see there are many possibilities that may be available for reducing your monthly mortgage payment depending on your current scenario and plans for the future.