The median price of a house reached $272,446 in 2021.
Buying a house outright isn’t viable for most people, but mortgages make it much more realistic. Unfortunately, many people find their mortgage is too high and want to reduce their mortgage payment rate. You can do several things to lower how much you need to pay each month.
In this guide, we’ll cover four vital financial strategies that you can use to lower your mortgage repayment. Keep reading for more.
1. Refinance with a Lower Interest Rate
Your mortgage interest rate will noticeably impact the size of your payments. Even if it’s just a tiny amount each month, this can add up to significant savings overall. For example, if you have a 30-year mortgage for $200,000 and can reduce the interest rate by just 1%, it could save you almost $120 a month (or $1,440 a year).
To achieve this, you need to pay attention to the market. With your current interest rate in mind, watch for lower options. Then, when can contact your lender to secure a lower rate when you notice a drop.
You can also reduce it by buying down your rate with mortgage discount points. These points come from paying interest upfront, which you might do as a part of your closing costs.
A point is 1% of the total mortgage. For a $200,000 loan, each one would cost you $2,000. Each point you have can reduce your interest by 0.25%-0.5%.
You’ll decide on interest points when buying your home, and your situation will determine how worthwhile they are to you. For example, paying a higher interest rate could be the better choice if you think you might move in the coming years. However, if you intend to live in the home for a long time, using points to reduce your interest could result in substantial long-term savings.
Remember that refinancing home loans isn’t the same as a mortgage recast, but both can help get you a lower mortgage payment rate. It’s also important to note that the interest you pay on your mortgage isn’t money you borrowed. The higher it is, the more you’re effectively paying.
2. Get Rid of Mortgage Insurance
Mortgage insurance might be required, but it can add quite a lot to your monthly mortgage payment. The type of loan you have will determine how you can get rid of your mortgage insurance.
Getting Rid of the FHA Mortgage Insurance Premium
Generally, any FHA loan obtained after June 1, 2013, will also have a monthly MIP (mortgage insurance payment). Anyone who put down more than 10% would only be required to pay MIP for 11 years. Anyone who puts below 10% has MIP on the entire life of the loan.
If you fall into the latter, you could look into refinancing your mortgage into a conventional loan. Your ability to do this, however, will depend on your equity.
If your equity is above 20%, you can get a conventional loan that doesn’t require paying PMI. However, if it’s below 20%, you’ll stop paying MIP but will have to start paying PMI (private mortgage insurance).
Because of this, you’ll need to know your equity beforehand. When refinancing, you’ll need to get your home appraised. To determine your equity, you can subtract how much you owe from the appraised value.
Getting Rid of Private Mortgage Insurance
The purpose of PMI is to protect your lender if you default on your loan. If you couldn’t put down 20% when you bought your home, you’re probably paying for PMI. It may be possible to get rid of it without refinancing.
Once your equity reaches 20%, you can ask the lender to remove it. Note that they might want an appraisal if you’ve hit 20% because the value of your home has increased. If you reach it through your regular payments (without any extra payments), an appraisal won’t be necessary.
If you don’t ask your lender to remove your PMI and you reach 22% equity, they’ll have to automatically cancel it.
3. Extend the Term of Your Mortgage
Another thing you can do to achieve a low mortgage payment is to extend the term with a loan modification or a new loan. This can spread the remaining balance over more payments.
Say, for example, you’ve paid back a portion of your mortgage and have $150,000 left to pay with 20 years remaining. You can then get a new 30-year fixed loan for this amount. You’ll spread the same total over 30 years instead of 20, lowering monthly payments.
4. Shop Around
If your mortgage payments include homeowners insurance, you may be able to find a better insurance rate. Contact different insurance companies and ask for some quotes.
You can also ask for discounts to potentially save more. If you have features that make your home safer, such as fire alarms and security systems, it can help you get a lower rate. Your employer may also get you a discount, or you might be able to bundle your home insurance with your car insurance.
It’s worth reviewing what you currently pay to ensure you’re not charged for anything you don’t need. Insurance is essential, but spending too much will cost you a lot of money in the long run.
Reduce Your Mortgage Payment
If you can reduce your mortgage payment, it will save you a lot of money that you can then use on other things. It’s worth looking at what you’re currently paying and seeing if any of the methods above will help you save some of your hard-earned money.
For more articles on finance, check out some of our other blog posts.
