Mortgage

9 Methods To Decrease Your Month-to-month Mortgage Cost

Can I lower my mortgage payment?

A heavy mortgage payment can feel like a burden, especially if your monthly budget is already tight. And the pandemic has made life difficult for many homeowners.

Fortunately, there are many ways to lower your monthly mortgage payment.

The easiest way is to refinance. With mortgage rates still low and home equity rising nationwide, millions of homeowners could cut their mortgage payments significantly.

Are you ready to see what you can save?

Check your refinancing eligibility. Start here (October 5th, 2021)

In this article (continue to …)

4 Ways To Lower Your Mortgage Payments With A Refinance

Refinancing your mortgage can have tremendous financial benefits – especially if you are strategic. There are several refi programs to choose from and using the right one can help you maximize your savings.

Four ways to lower your monthly mortgage payment by refinancing are:

Refinancing At A Lower Interest RateFinancing In A Longer Loan Period Switching From An ARM To A FRM With A Low-Doc, Streamline Refinance

Let's take a closer look at each refinancing option.

Refinancing at a Lower Interest Rate

The main reason for homeowner refinancing is to lower the mortgage rate. This will lower your monthly mortgage payments – but that's not all. It can also save you thousands (or tens of thousands) over the life of the loan.

"For example, let's say you have a 30-year loan with a balance of $ 200,000 at 3.75% interest," said Eileen Derks, mortgage director at Laurel Road. "When you refinance at 2.75% interest, you lower your monthly payment by (approximately) $ 100 and save a total of $ 39,500 in interest payments over the life of the loan."

If you have had your existing mortgage for more than two years – or if your finances have improved since buying your home – there is a good chance that you will qualify for a lower interest rate and significant monthly savings.

Check your refinancing eligibility. Start here (October 5th, 2021)

Extend your repayment term

Another option is to refinance and extend the term, i.e. the time you have to repay your loan. The advantage here is that you lower your monthly payment and provide additional monthly cash flow.

"For example, suppose you have a current loan balance of $ 250,000 at 3.25% interest and have 18 years remaining to maturity. Your current monthly payment is approximately $ 1,532, ”says Derks.

"If you were to refinance for a new 30 year term, still at 3.25% interest, your new monthly payment would be approximately $ 1,088, giving an additional monthly cash flow of approximately $ 442."

This strategy can work even if you already have a low interest rate. Just note that you may end up paying more in total interest. But if your main goal is a lower monthly mortgage payment, it may not matter.

Refinancing into a fixed-rate mortgage

Perhaps you have an adjustable rate mortgage (ARM) that offers a fixed rate for the first few years of your loan and an adjustable rate thereafter. While your rate can go down, it can also skyrocket, resulting in much higher monthly payments than you can comfortably afford.

However, when you refinance to a new fixed rate mortgage loan, you remove the uncertainty of floating rates and potentially save more money over the life of your loan.

"Let's say you have a 30-year floating-rate mortgage loan with an initial balance of $ 200,000 and an interest rate of 2.5% that will increase to a rate of 3.5% after the first five years," says Derks.

“In this scenario, your monthly payment would go from about $ 790 to about $ 881 – almost $ 100 more per month due to the tariff adjustment.

“But if you refinance to a new 25-year fixed rate loan that doesn't extend your term for more years, and at a rate of 2.75% that takes into account your $ 4,000 closing cost, your monthly payment is $ 830. This would allow you to save $ 50 per month compared to no refinancing. "

Refinancing from an ARM to a fixed-rate mortgage may not bring you huge monthly savings. But it gives you additional financial security as you don't have to worry about your rate or payment increasing in the future.

Check your refinancing eligibility. Start here (October 5th, 2021)

Use an optimized refinancing

A fourth option is Streamline Refinance, which is available for many FHA, VA, and USDA home loans.

With a streamline refinance, there is no obligation on the lender to reconsider your income, creditworthiness, or employment. That means the loan can be completed much faster and potentially a lot of paperwork avoided.

In addition, you can skip the house valuation with a Streamline Refi. That means you can refinance yourself with little to no home equity – and you can set a lower interest rate than other types of low refinancing.

“With a streamline refinance, the lender is typically 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 get a lower interest rate and payment with very little cost and very little effort,” she explains.

Benefits of a lower monthly mortgage payment

"The main benefit of lowering your monthly mortgage payment is that it gives you additional household cash flow that can be used for a variety of things," said Cindy Laffey, branch partner and mortgage planner at Inlanta Mortgage in Pewaukee, WI.

Laffey states that by saving your mortgage you will:

Pay off other loans and credit cards with higher interest rates faster. Build savings for unexpected expenses and home repairs

If you need extra cash flow every month for these reasons or other, refinancing your mortgage can be of great help.

Who is eligible for refinancing?

Many borrowers who currently have a mortgage loan are able to refinance.

According to Khari Washington, mortgage broker and owner of 1st United Realty & Mortgage, the requirements for refinancing a loan are similar to those for buying a home. Washington says a lender will look into the following:

Your Debt-Income Ratio (DTI) Your creditworthiness The equity of your home The stability of your income Your current home value

You should also understand the costs and benefits of refinancing in order to decide if it is right for your situation.

Remember, you will pay the closing costs for the refinancing, which is typically 2-6% of your loan amount. The average closing cost for refinances across the country is $ 5,749, according to recent data from ClosingCorp, a real estate data and technology company.

To find out if refinancing is worthwhile for you, compare your estimated closing costs to your monthly savings. If you save more in the long run than you will spend upfront, refinancing is usually worthwhile.

Request an interest and closing cost estimate from a lender (October 5, 2021)

Can I lower my mortgage payment without refinancing?

Refinancing is the most important way to lower your monthly mortgage payments. But it's not the only way.

Some homeowners may not be eligible for refinancing. Others may not want to do a refi mandate because of the closing costs.

In any case, there are a few additional strategies worth exploring:

Reformulate your mortgage

When your loan is rewritten, a large lump sum is applied to your loan amount and the same due date (disbursement date) is maintained.

"This changes the repayment schedule of your loan and then reduces the monthly principal and interest due without the need for refinancing, which makes this a very inexpensive and efficient option," suggests Derks.

This could be an option if you've had a lot of cash lately – from an inheritance or a large bonus at work, for example.

If you are interested in recasting your mortgage, contact your loan service provider (the company you make mortgage payments to). They will be able to guide you through your options.

Temporarily pause your credit with indulgence

You may also be able to take your loan on hold with an estate if you've experienced temporary hardship and loss of income.

“The recent closings due to COVID-19 have caused many borrowers to pause their loans. However, while forbearance allows you to defer payments on your mortgage, you cannot skip payments altogether, ”says Laffey.

In fact, after the grace period expires, you will need to repay any missed reduced payments or work with your lender on the most appropriate repayment solution for your financial circumstances.

“For this reason, leniency is generally not recommended as it can prevent you from refinancing and affect your creditworthiness,” warns Derks.

Ask about a loan modification

Alternatively, you can consider a loan modification that can extend the life of your loan and / or lower your interest rate if you qualify for it.

"These are options sometimes granted by loan service providers to help borrowers avoid foreclosure and prevent them from losing their homes due to circumstances that may or may not have been under their control," explains Laffey.

To be eligible, you will likely need to provide supporting documentation – including hardship proofs, proof of income, bank statements, and more.

Other strategies

These aren't the only ways to lower your monthly mortgage payments. Andrea Woroch, a California-based financial expert, recommends two other methods.

"If you are paying for personal mortgage insurance (PMI), likely because you are paying less than 20% of your down payment, you might be able to eliminate the PMI by requesting an appraisal of your home," she says.

"If your home value has increased significantly since your first purchase, that may be enough to qualify for PMI removal."

Additionally, it is worth checking your home insurance since you first bought your home or if it has been a few years.

“You might be overlooking one of the quickest, easiest ways to cut your monthly mortgage payment, assuming you pay it in escrow. That's because insurance costs tend to rise every few years, ”says Woroch.

"If you find out that your insurance premiums have gone up, contact your insurance company to see if you can get a cheaper rate, or look for a cheaper policy."

Summary: 9 Ways To Lower Your Monthly Mortgage Payment

To sum it up, here are 9 ways you can lower your monthly mortgage payment – with or without refinancing:

Lower Your Interest Rate With A Refi Extend Your Loan Term Move From An ARM To A FRM Use A Streamlined Refinance Reshape Your Mortgage Ask For A Forbearance Plan Request A Loan Modification Remove Mortgage Insurance Lower Your Home Insurance Rate

The good news is that with mortgage rates hovering near all-time lows, many homeowners are still eligible for refinancing.

“I recommend speaking to a qualified mortgage planner or loan officer who can offer you a mortgage plan that best suits your needs,” recommends Laffey.

Remember, lowering your interest rate even a fraction of a percent can result in surprisingly large monthly savings.

Even if you are unsure if you would qualify, it is worth speaking to a lender about your options.

Confirm your new plan (October 5, 2021)

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