How to Lower Your Monthly Mortgage Payment
- Homebuying & Homeownership
- Kelly Fasse
Is your home’s monthly payment becoming a nightmare? If you are struggling to make ends meet and your monthly home mortgage payment is more than you can afford, then you may want to consider these tips for lowering your monthly mortgage payment.
Refinancing Your Mortgage
One of the most popular ways to lower your home loan payment is to refinance your mortgage. Often, borrowers can qualify for lower interest rates and change the terms of their loan, resulting in a lower mortgage payment. When refinancing to reduce your monthly payment, you’ll often need to extend the term of your loan, which will reset your amortization schedule.
What’s the Break-Even?
A good rule of thumb is to figure out how much refinancing will cost you in fees, then calculate how much you’d save each month. To calculate a your break-even, first divide the difference between your original and new mortgage payments into the fees of the new loan. This number tells you the number of months you’ll need to break even on your new loan. Let’s say you end up saving $200 a month from refinancing and need to pay $3,000 in fees for the new home, taking you 15 months to break even. You’ll need to determine if refinancing your home loan makes sense based on your individual circumstances.
Eliminate Private Mortgage Insurance
When you refinance, you can save money by eliminating or reducing your private mortgage insurance (PMI), which is an additional cost you must pay if your mortgage down payment was less than 20% of the total cost of the home. PMI can also be reduced if you use a home equity loan to finance your down payment of 20% when you refinance.
Increase Your Mortgage Loan Term
Another way to lower your monthly mortgage payment is to refinance to a longer loan term, or to extend your repayment term without refinancing. Typically, this strategy will increase the amount of interest you’ll pay over the life of the loan, but it will lower your monthly mortgage payment.
Pay Discount Points
A discount point is equal to 1% of your total mortgage amount. To lower your mortgage payment, you may qualify to pay one or more points, which lowers your interest rate about a quarter of a percent. Many times, points are tax-deductible and you can finance these points into your mortgage. Typically paying points is best if you are planning to keep your home for a long time.
Review the Government’s Making Home Affordable Programs
When the housing crisis hit Americans, many homeowners were underwater in their mortgages and could not afford their mortgage payments. To help struggling homeowners avoid foreclosure, the U.S. Department of the Treasury & the U.S. Department of Housing and Urban Development (HUD) developed several programs, including the Making Home Affordable (MHA) program. If eligible, you may be able to lower your monthly payment. Other programs under this umbrella include Home Affordable Refinance Program (HARP), Home Affordable Modification Program (HAMP), Second Lien Modification Program (2MP), Home Affordable Unemployment Program (UP), and Home Affordable Foreclosure Alternatives Program (HAFA).
Reduce Your Property Taxes
If you are a veteran, a senior or disabled, many states will allow you to freeze your property taxes to their current rate. Or you may qualify for a tax-relief program. Check with the Pennsylvania or New York department of taxation to see what they offer for property tax relief.
Lower Your Homeowners Insurance
If you have a home mortgage, you must have homeowners insurance. But there are opportunities to negotiate or re-evaluate your insurance rate, which can be another way to help reduce your monthly payment. Find ways to earn extra discounts on homeowners insurance, like installing smoke detectors or home alarm systems. Or, increase your deductible to save on your premium. Also, if your credit score has improved, you may also be eligible for a lower rate.
Make Extra Mortgage Payments
This may sound counter-intuitive, but to reduce your mortgage payments over time, make as many extra payments as you can afford. Extra mortgage payments go toward your mortgage loan’s principal and ultimately reduce the total amount you owe. If you get a bonus from work, win a court settlement or receive a monetary gift, consider applying the funds to your mortgage. Also, look for opportunities to make an extra half-payment each month or an extra monthly payment each year.
If you have any questions on how to reduce your mortgage payment, please contact our PA or NY mortgage lenders directly.
Kelly Fasse is a Mortgage Loan Support Specialist at C&N. She has over 25 years of banking experience with C&N. Kelly's office is in our Mansfield Branch located at 1085 South Main Street, Mansfield, PA 16933.
Kelly attended Pennsylvania College of Technology and she holds several banking diplomas from the American Bankers Association. She is also active in the Mansfield Chamber of Commerce.