For the majority of homeowners, the mortgage payment they make each month is the largest recurring expense they have. This payment often makes a big dent in household income, and it is likely the one responsible for the most anxiety. Generally, the price of the home, the down payment you make, the length of the mortgage and the interest rate all work together to determine the monthly mortgage payment.
A lot of homeowners seem resigned to their fate when it comes to making this payment, but you do have control over it to a certain extent. That’s not to say you can snap your fingers and the payment is lower, but there are a few tips you can use to lower your mortgage payment and free up some extra cash each month. Here are four that have worked for people just like you:
1. Increase the Life of the Loan
The overall length of a mortgage has a big impact on your current and future financial life. The shorter the overall term, the more you will save in the long run and the more you will pay in the short term. Basically, you’ll save thousands of dollars in interest if you pay off your mortgage in 15 or 20 years instead of 30 years, but your monthly payments will be quite a bit higher.
As an example, a $300,000 mortgage at a fixed rate of 3.5% paid over 15 years works out to around $2140 per month. The same mortgage worked out over 30 years equals about $1735 per month. That’s a $400 difference, which is significant in most households. You will pay a lot more in the end, and you’ll be making payments for double the time, but if it is crucial to have lower payments, this is one way to do it.
2.Refinance the Loan
If you’re well into the mortgage and want to reduce your monthly payments, you may consider refinancing the mortgage loan. This option consists of paying off your mortgage and getting a new one. Much of the time, homeowners refinance to free up cash from the equity in their home, but you can also use it to lower your mortgage payments. If your current mortgage has an interest rate you aren’t fond of, and the current rates are lower, refinancing could be your ticket to lower rates and subsequently, lower payments. Refinancing includes any penalties and fees built in to your contract, so it’s wise to figure out if the lower payments cancel out these costs, but they probably will.
3. Make a Larger Down Payment
Common sense tells us that if you have a lower mortgage, your payments will be lower than if you have a higher mortgage. If you have your heart set on a certain property, but aren’t fond of the payments you’ll have to make, you can always make a larger down payment to lower the amount of the loan.
Naturally, it isn’t always possible to come up with “more money” to help yourself out, but if you can tap your savings or find it elsewhere, paying more upfront can knock a decent amount off the total you will pay each month for your home.
4. A Custom Plan
We live in the age of competition in the mortgage industry, and of lenders who are willing to get creative when helping you figure out the details of your mortgage. The days of “here’s the deal, take it or leave it,” are long gone. If one lender isn’t willing to help meet your needs, another surely will. Quite often, you must make a choice between paying off the mortgage sooner or having lower payments, but within those options are a lot of potential variables.
If you can find a mortgage lender who is willing to work out a custom plan for you, the chances of ending up with a lower payments is that much greater. Keep in mind that you are in control of the situation. That’s not to say you can always have everything exactly the way you want it, but you can certainly shop around and find a scenario that is more to your liking if one place isn’t willing to be flexible.
A mortgage can be a finicky, frustrating thing, but home ownership and all the benefits that come along with it is worth the trouble. Many proud homeowners are discovering that something they once thought was unattainable is now a reality. With a little research, some patience and good mortgage provider, you can too.
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The author of the article is Jeremy Benson. He has been writing about finance and mortgage since 7 years. Blogging is one among his greatest passions. Follow him on [email protected]