Many people struggle with their mortgage payments. Whether they have lost a job, been burdened with new bills (such as medical bills), or simply over-extended their budget, it’s not uncommon for homeowners to be “house poor,” meaning their mortgage payment leaves room for little else in their budget. These people need a lower monthly mortgage payment.
If you are experiencing this problem, there are solutions. So many people have dealt with this issue in the past, that the industry, as well as federal and local governments, have created ways to help you deal with the problem.
Note: A Lower Monthly Payment Is Often More Costly in Total
It’s important to note that these tips, while lowering how much you pay every month, do not reduce your total costs. In fact, many of them increase your total costs. (Extending the loan terms, for example, can reduce the monthly cost but you will pay more in the end.) Lower monthly costs with a higher total cost has both positives and negatives, so you should consider carefully before making changes to your mortgage.
8 Tips to Get a Lower Monthly Mortgage Payment
Use Interest-Only Payments
An interest-only mortgage is a product where you pay only the loan interest for a certain period of time. Once this interest-only period is complete, you repay the loan either through a lump sum or monthly payments.
For a short time, they can help you manage your budget, but borrowers should understand that during the initial period, they are not reducing the loan balance and there will be a steep jump in costs at some point. However, these options are good for people who are experiencing temporary financial hardship, such as job loss or layoffs.
Refinance an Adjustable-Rate Loan
An adjustable-rate mortgage, often called an “ARM loan” can help reduce your payments while creating excellent savings for you and your household. Essentially, you will have an initial period where the interest rate is fixed, then the interest will be adjusted to match current rates. ARMs often start with a lower rate, although you take on the risk of higher interest in the future.
Remove Mortgage Insurance
If your home loan was created with mortgage insurance, and you have been making regular payments for an extended period, it’s possible that you could have this insurance removed. For many loans, the insurance premiums will be removed automatically. But don’t assume it’s gone. You may have reached the threshold (usually about 20% or 22%) where you can have the insurance removed, but sometimes you need to contact the lender to make it happen.
Extend the Loan Terms
One of the most common and simple ways to lower your monthly payments is to simply extend the loan terms back to 30 years. This is possible with a variety of loan products, and you may not need to go through an extensive refinance to make it happen.
How much could you save? This isn’t a perfect example, but using our mortgage calculator can help. If you have, say 20 years left on the loan with a balance of $400,000 and an interest of 4%, you would have a principal and interest payment of roughly $3,332. But if we extend the terms to 30 years, the payment is reduced to $1,910. Again, this is far from a perfect example, and your results will be much different, but it highlights the significant monthly savings from re-extending the loan.
Request a Loan Modification
A loan modification can be a convenient and affordable way to reduce your payments without completely refinancing your loan. However, loan modifications are for people who don’t simply have a tight budget, but are experiencing, or expecting, significant financial hardship. If delinquency and foreclosure are in the near future, you should talk with your lender about loan modification immediately.
You may be able to get mortgage forbearance, a reduction in interest, or even (although rarely) a reduction in the balance. For both financial and ethical reasons, lenders do not want your loan to go into default and foreclosure, so most are happy to work with you to avoid a significant problem.
Refinance to a Lower Interest Rate
With low interest rates currently dominating the real estate market, it’s a great time to refinance. If you have a mortgage that was taken out 10 or 15 years ago, you may be able to refinance into a new loan with a much lower interest rate. The specifics will depend on your total reduction, but this measure could save hundreds of dollars a year.
Reassess Your Home to Reduce Taxes
This is a rare step, and one that could backfire, but if you feel your home is overvalued resulting in high property taxes, you could have your home reassessed. Call your assessor and find out if a reassessment is possible, as a lowered value on your home could reduce taxes, thereby reducing your payments.
Just be careful! If you have your home reassessed and the value is higher, you could end up paying more. This step should only be taken after careful consideration and research.
Use Loan-Modification Programs
Affordable, stable home ownership is important. As such, federal, state, and local governments, with the public’s support, have create a variety of programs that help people avoid financial issues created from large mortgage payments.
One of the most prominent is the Home Affordable Modification Program (HAMP), which offers homeowners at risk of foreclosure a reduced monthly payment. To use this program, you’ll need to provide evidence of financial hardship and an inability to make the monthly payments. Essentially, the program creates incentives for services, lending institutions, and investors to encourage successful loan modifications.
Let Us Help You Get an Affordable Mortgage Payment
If you are struggling with your mortgage payments, we may be able to help. With a vast assortment of resources and decades of experience in the industry, our team can search through numerous options, all with the potential to reduce your monthly payment.
