Would a lower mortgage payment make a difference in your lifestyle or family budget? If you could use a lower mortgage payment each month, these tips might help save a little on your budget.
Three Lower Mortgage Payment Options
The place where there may be room for improvement is refinancing your loan. The longer the time since taking out the loan you wish to replace, the more you may be able to save by refinancing.
Leverage Your Equity
You might get lower mortgage payments by taking out a new conventional mortgage. This option requires that you find a lower rate than the original loan or smaller amount due to your previous payments of principal that now have increased your equity.
Alternatively, you might be able to save on the mortgage insurance. If your equity has increased, either by repayments, rising home values or both, you can apply to end your policy, stopping the payments. If you can refinance with equity for a combined smaller payment and without premiums, you will double the savings.
Loans for real estate usually combine repayments of principal and interest on the outstanding balance. Refinancing with a loan that only pays interest every month is a short-term solution at best.
A few lenders may offer an extended period of interest only payments. The down-side is either a future balloon payment or payments of interest and principal.
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Adjustable Rate Mortgages
Another option for lowering monthly payments is an adjustable rate mortgage. The initial fixed period may be as much as five years followed by yearly changes, relative to some index. If interest rates stay low, you pay a lower mortgage payment every month.
Alternate Option: Pay More Now, Pay Less in Interest
Another approach is to pay less interest over the long run. If you have increased your equity and your payments are already low, perhaps you can refinance for a shorter term. So, if you make larger payments over fifteen years instead of thirty, you may get a lower interest rate. The payment will be higher, but you will pay much less over the lifetime of the new loan.
A Final Consideration When Seeking Lower Mortgage Payments
One consideration when you are refinancing a home loan the the reasons mentioned above is that you will have new closing costs associated with the new loan. You want to be sure that the ends justifies the means in terms of costs for a new loan to meet your goals of lowering your monthly payments or lowering your overall interest paid.