Financial stress can hit anyone hard, including you. Expenses are up, while your paychecks stay the same. You feel your debt growing and bill payments leave you with barely enough money to survive. Maybe everything in your life has gone wrong, and it’s ruining your ability to pay your mortgage.
A too-large mortgage might devour an entire paycheck, maybe even two. So, you investigate how to lower your monthly mortgage payment, in order to free up some finances for other expenses. You learn about refinancing, but when you apply for it, you don’t qualify. Maybe your credit isn’t good enough or you purchased your home too recently, but either way, you can’t refinance. Luckily, there are ways to lower your mortgage payment, even without refinancing.
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Change Your Mortgage Payment Methods
If your mortgage is too much to handle, some underlying problems may be hiding in the way you go about your monthly payments. By shifting the way you pay your mortgage, you may be able to free up money for other expenses and give yourself some relief in the long run.
Make One Extra Payment for the Year
If you have been budgeting, chances are that one month out of the year you can afford to pay an extra payment on your mortgage. This method can lower your interest rate and you can imagine how much it will add up on a 30-year mortgage — one extra payment per year may even shave off some years of payment.
Round Up Your Monthly Payment
If you can’t afford to pay a whole extra month once per year, consider rounding up your mortgage payment every month. If you round up your payment to the nearest hundred dollars, you can chip away at your long-term costs and shorten your loan term.
For example, if your monthly mortgage payment is $1,250, consider rounding up and paying your lender $1,300. This is a smaller hit to take (rather than making a whole extra payment one month out of the year), but can make a lot of difference in the long run.
Consider a Bi-Weekly Payment Plan
You can enter into a biweekly mortgage payment with your bank. Just make sure you state that, for the majority of months out of the year, they should now expect two checks from you. Since there are 26 two-week periods in a year, more will be paid toward your mortgage in that year.
Change Your Loan Structure
In addition to making changes to your payment methods, you can further reduce your mortgage by examining your loan structure and terms. Many times this may open up payment options, extend the duration of your loan, and highlight unnecessary payments.
Another solution to lowering your monthly payments is by extending the time period of your mortgage. Re-amortizing (or re-casting) is where you simply extend out the timeline for paying off your loan with your lender. For example, taking a 30-year mortgage loan and re-amortizing it to become a 40-year mortgage loan will lessen the amount you have to pay each month.
. Unlike refinancing, re-amortizing your loan doesn’t require a credit check, only a small one-time fee around $250.
Be aware that extending your loan might lower your monthly payments, but it won’t lower your interest rate. That can mean you’ll end up paying more in the long run thanks to interest.
Extending your loan is a good solution if you need financial relief now. Lower monthly payments means more money can go towards other bills, but you will have to pay more on your home in the long run.
Get Rid of Your PMI
Private mortgage insurance (PMI) is a type of insurance that protects the lender if the borrower fails to pay the loan. It’s typically an expense that first-time home buyers aren’t aware of. The homeowner is required to pay for PMI as long as they have paid off less than 20% of the total home loan. PMI can be paid for in a one-time payment at closing, yearly, or monthly.
If you are paying for PMI yearly or monthly, there is a way to get rid of it and save money for the long term. This might require dipping into your savings, but if you are able to pay off 20% of your mortgage, you no longer have to pay for PMI. It’s important to remember that when you pay for PMI, that money is not helping you pay off your home, it goes directly to the insurance company.
Once you hit that 20% threshold, you can reach out to the insurance company and cancel your PMI. Make sure to contact your lender and inform them what is happening and double check you’ve hit that 20% point. This could save you hundreds of dollars every year.
Extend or Modify Your Loan
Modifying your mortgage is different from refinancing it. Instead of replacing your loan with a new mortgage, you can modify your existing loan to change the terms. If you qualify, some lenders may offer their own modification plans, but there are several programs that may be best tailored for your specific mortgage modification needs. Loan modification programs include:
- Federal Housing Administration;
- U.S. Department of Veterans Affairs;
- Fannie Mae/Freddie Mac Flex Modification.
Many people can qualify for mortgage modification through a loss of income, medical bills, divorce, disability, and several other circumstances. Through modification, qualified applicants can reduce the amount of principal that determines their monthly payments, extend the term, adjust the interest rate, and capitalize the overdue amount (which means the past-due amount is applied to the principal).
Look Into Lowering Your Property Taxes
The government determines how much to tax you for your home by going off how much they think it’s worth; not how much you paid for it, nor what other real estate experts think — what they believe the home and land is worth.
Sometimes, that value is incorrect. One way you could lower your monthly mortgage is to dispute your property value assessment. If you think you are paying too much property taxes and that the government has overvalued your home, you can request for a re-evaluation.
The process for this is different everywhere, so check with your local city and county governments. Typically, there is a board in charge of property taxes and you need to submit an appeal to them. Then, you include relevant information that states your case, including how much you paid for the home, how much similar homes are selling for, and an independent evaluation of the home’s worth.
If the board determines that your home has been overvalued, then they will lower your property taxes, thus saving you money.
Put More Down
It may be enticing to enter into a mortgage agreement in which you aren’t required to put a lot of money down. After all, you’ve made this big decision, have been house hunting for months or years, and finally found the right home.
However, putting more money down upfront means a lower monthly mortgage payment and possibly a shorter term — meaning you’ll pay less interest. If you can, consider putting at least 20% down, this money upfront will save you a lot in the end.
Sell Your Home
If none of these solutions work for you, your credit score is too low to refinance, and your mortgage payments are too high, maybe it’s time to sell your home. There is no shame in not being able to own a home, and you need to take care of your finances.
Selling your home, especially if you’ve had it for a few years, could mean a big boost to your savings if you sell for a profit. Then, you can find a more affordable housing option, like renting an apartment or smaller home, and wait for a better chance to buy again. During that time, you can build up your credit, grow your savings, and investigate ways to get a more affordable home.
Remember that you always have options, and you can even couple them together to get your mortgage as low as possible. Investigate all options, meet with a financial advisor, and plan out what will be best for you. If nothing works and you are still struggling to pay your mortgage, sell your home and try a different solution. That way, you don’t risk ruining your credit and finances with foreclosure and instead become more flexible in your housing situation.
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