Whether you are preparing to buy a home or are simply looking to trim up the monthly budget, mortgage payments are most homeowners largest expense. If you are looking to be a homeowner, it soon will be. It makes sense that a common question that may be on your mind is either "how can I make sure my mortgage payment is the lowest it can be" or "how can I reduce my current mortgage payment."
We will talk about both of these topics in this article. You will see tips on how to make sure your mortgage payment is low before you even start making mortgage payments, as well as being able to lower the existing payment that you have now.
How can I make sure my future mortgage payment is the lowest it can be?
The following are tips you can follow to make sure that your first mortgage payment is as low as you can get it.
- Make a larger down payment
- Get a mortgage that does not require mortgage insurance
- Get the best interest rate possible
- Get an interest-only mortgage
- Pay your mortgage insurance when you close
This method is simple math. If you make a large down payment, that means your overall mortgage will be lower. If your mortgage is smaller, then so too will your monthly payment. It is always a good idea to save for a down payment on a home.
There are some loans that require mortgage insurance to be included in your monthly mortgage payment. In general, these are loan types that require little to no down payment (another good reason to get a large down payment).
Rushing into a mortgage without rate shopping is a terrible idea for a lot of reasons, but it will end up increasing your monthly mortgage payment. If you have a high-interest rate, then that is more interest per year you will have to pay, which increases your mortgage.
This mortgage type is different than a traditional mortgage. Instead of making payments towards both the interest and the principle of your mortgage at the same time, you spend the first several years paying the total interest on the loan, followed by years of paying just the principle. This method starts you out with a really low monthly payment, but it will increase over time. This is a good method if you budget and prepare for your mortgage payment to increase over time.
You may have the option, instead of paying your mortgage insurance (or PMI) annually, to pay it all upfront when you close. This is a simple guarantee to lower your mortgage payment, but it requires you to have cash available when you close, which can be a challenge for many.
Follow these steps when you are shopping for a mortgage, and you can expect a lower mortgage payment for the life of the loan!
How can I lower my current monthly mortgage payment?
Lowering your existing mortgage payment is a little more complicated than simply making sure it is low, to begin with, but there are several things you can do that will achieve this goal.
- Refinance your mortgage:
- Extend the loan
- Remove mortgage insurance
- Apply for a loan modification
- Monetize your home
This is a popular process that many homeowners undertake in order to reduce their mortgage payments. This is an especially effective method if you know that your interest rate is terrible. Though there is a fee associated with refinancing your mortgage, the amount of money you could save in the long run may make it worth it. Consult with a mortgage expert before undergoing this process.
This is a more simple method. You simply make the term of the loan longer than it originally was. Stretching out the loan makes monthly payments lower, giving homeowners some breathing room. However, it does come with a cost: you will end up paying more in interest over time.
We have been talking about mortgage insurance a lot, but it is a common cost that many homeowners even forget is present on their loan. If you have satisfied certain conditions on your loan, your lender may allow you to remove the insurance. Remember, this insurance is not for your benefit, it is for theirs in case you default on your loan. You do not increase your risk by removing this insurance. In general, you will need to have 20% equity in your home paid off (though certain loan types, like the Federal Housing Administration Loan) will have other requirements.
Certain government-backed loans have loan modification options built into them to allow struggling homeowners to change their loan. VA loans offer loan modifications and hardship assistance as do FHA loans. Even if you do not have either type of these loans, your lender likely has some kind of modification program or hardship assistance that you can discuss with them to see if you qualify. Remember, your lender has a vested interest in making sure you can pay back the loan, and if you reach out to them before you are too far behind, there is likely something they will be able to do for you.
This is less of an official program and more of using your house to generate revenue that will help you make loan payments. Renting rooms out is a consistent, reliable method in receiving monthly income that can help with your mortgage payment. You may also want to consider programs like Airbnb where you can rent out rooms or parts of your house to travelers. If you have a small house, this might not be a great option, but if you have a large home and are struggling to make payments, this may be an easy, cost-free option for you.
Preparing early to make sure your mortgage payment is low can save you a lot of hassle in the long-run, but there are methods to lower your mortgage payment if it has begun to overwhelm you. Explore your options and make sure you pick the right option for you!
