Your mortgage is probably your biggest expense every month. So how can you make it smaller?
There are many ways to lower your monthly mortgage payments, but they may not all be right for you (and some take more doing than others).
Refinance to lower your payment
Refinancing involves replacing your current mortgage with a new one that offers a lower interest rate. Several factors influence whether you’ll want (or be able) to refinance. First is whether current interest rates are low enough justify the fees and closing costs that come with a refi: Generally, you’ll want to see a difference of at least 0.5 to 1 percentage points. You also should ensure your mortgage has no prepayment penalty; if it does, refinancing to lower your payment may not make sense.
The age of your mortgage is another factor: Many lenders won’t allow refinances for loans that closed within four to five months, and may have other qualification requirements. But if your loan is recent enough that its amortization schedule still leans toward interest-heavy payments, it may be worth examining refinancing.
Another approach is to attempt what’s called mortgage recasting. With that option, you make a decent-size payment toward principal. Then, your lender can re-calculate your monthly payments based on that new balance (but on the same loan term). The reduced loan amount means smaller monthly payments and less total interest paid over the course of the loan.
Dump your PMI
You might also try to eliminate your private mortgage insurance (PMI). PMI is assessed when your down payment is less than 20 percent, and could cost 1 percent or more of the total loan value each year. If you pay down your mortgage to the point where you have 20 percent equity in your home, you can ask your bank to remove the monthly PMI.
If you’re in financial distress, the government offers loan modification programs aimed at helping with financial hardships. There are stringent eligibility rules, but your lender can offer more information and help you learn whether you’d qualify for short- or longer-term relief.
For example, you could extend a 30-year mortgage into a 40-year loan. Not every bank will allow it, and you’ll have to make your case, but the longer term means lower monthly payments. Still, the difference may too small to justify the eventual higher total cost of the loan due to paying interest for a longer period.
Lower your taxes
Other methods that can reduce payments don’t have to do with the mortgage itself. You can try to lower your property tax bill to reduce the escrow payment that typically makes up much of your monthly mortgage payment. Tax assessments are sometimes too high following real estate market corrections or local rezonings, for instance. If you think that could be the case for your house, consider appealing your property’s value to the relevant state or local decision makers.
Finally, though it’s not the most appealing prospect, you could consider getting a roommate. If you have space to spare, the extra money they’ll contribute can lead to substantial savings—perhaps even enough to outweigh the inconvenience of sharing your home.