Getting Help Paying Your Mortgage While On a Fixed Income
Living on a fixed income is hard. Whether you live off of a retirement fund, disability, a trust fund, or other kinds of fixed income, a large portion of succeeding is creating a long term budget. Every dollar must be planned and accounted for, or you risk not having enough money for necessities.
When prices fluctuate, those on fixed incomes have to adapt, or otherwise risk ruining themselves financially. Especially if they don’t have extra savings to fall back on, stretching every dollar is important.
This is especially relevant when it comes to the largest of all bills; the mortgage. It’s quite possible that your mortgage swallows a major portion of your income every month. Life can go wrong, making it hard to meet your mortgage. If you are struggling to make ends meet, there are a few ways to get help with your mortgage, and save some much needed money.
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The Limitations of a Fixed Income
A fixed income can come in many forms. The two major types of fixed income people experience are when they retire and live off of a retirement fund, or are disabled and receive help from the government. These folks receive a set amount of money month to month, and that amount doesn’t waver.
Often, those on a fixed income barely have enough money to make ends meet every month. That means very little money goes into their savings, making them relatively inflexible with money. If a disaster strikes that requires upfront cost, it could wipe out their entire monthly income.
This lack of flexibility makes being able to lower bills and getting financial help all the more important. While other people might be able to put stuff on a credit card for a month and then pay it off later, many on a fixed income can’t, as next month’s money is already planned for.
Refinancing Your Home
If time and again you struggle with paying your mortgage, and you have a good credit score, a potential solution is to refinance your home.
Refinancing your home is basically reaching out to a lender, getting your old mortgage loan paid off, and receiving a new loan in place of it. This allows you to renegotiate the terms of the loan, including how much you pay a month, your interest rate, and more.
By refinancing your mortgage, you can pay less per month without incurring massive interest costs. The only downside is that when refinancing, it extends the loan’s duration. So, say you only have 10 years left on a 30 year mortgage, refinancing would result in having a 20 year, or even a new 30 year mortgage. But, if you have the income to pay for the refinanced mortgage for years to come, it can be a worthwhile shift.
If you have poor credit, it might be worth it to get credit repair. That way, you can have a strong credit score and qualify for refinancing.
Extending Your Loan
Let’s say you don’t have the greatest credit, and can’t qualify to refinance your loan. There is a solution for you, it just isn’t as effective as refinancing. Extending the length of your loan, also known as re-amortizing or re-casting, can lower your monthly mortgage payments. the
When you refinance your mortgage, you get a new loan with lower payments, lower interest, and a longer loan duration. Extending your loan will give you the result of lower payments by taking your existing loan by only lengthening your loan duration. Your interest rate stays the same, but your monthly payments are less because the money is spread out over a longer period of time.
One nice perk of extending your loan is that it doesn’t require a credit check. All it takes is a one time payment, which varies between lenders but is typically around $250. The biggest downside is that you will be paying more for your home in the long run, since your interest doesn’t change.
Getting Rid of PMI
Many first time homeowners, or those without a lot of savings when buying a new home, can’t meet the typical 20% down payment. This doesn’t mean they can’t buy a home, but it does mean they have to pay for private mortgage insurance (PMI).
PMI protects the lender in case the borrower doesn’t pay their loan. The borrower has to pay for PMI, which can be done monthly, yearly, or a one time payment at closing. Once they hit that 20% of the mortgage cost, they aren’t required to keep and pay for PMI.
If you are about to hit pay off 20% of your mortgage, or have already passed that marker, make sure you aren’t still paying for PMI. You might need to contact your insurance provider and lender to get it cancelled. This could lower your monthly costs as much as $100 or more.
Selling Your Home for Something More Affordable
If you use the above suggestions and you still can’t keep up with your mortgage, then you need to get into more affordable housing. Selling your home might seem like a drastic solution, but if your mortgage doesn’t fit with your fixed income, it might be the best choice. Minimizing debts and taking steps to secure or improve credit are both important to those on a fixed income, and downsizing or moving into alternative housing can definitely help.
Either you find a home with a smaller mortgage, or maybe not even get a new mortgage. Renting can be a reasonable housing option for those on fixed income. Downsizing is nothing to be ashamed of, and if you are saving money, those funds can go for other important costs. Make sure that whatever home you downsize to is well within your price range, so you don’t have to keep the same problems you have now.
Be sure to investigate all of your options. Meet with a financial advisor to help guide you to the best choice for your situation. Just because you have a fixed income doesn’t mean you have no wiggle room. Don’t just ignore the problem, as it could continue to compound until your home is foreclosed on, or until you ultimately need to declare bankruptcy.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated February 28, 2019. It was originally published January 10, 2018.