How to lower your mortgage payment

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Your mortgage is probably your biggest expense every month. So how can you make it smaller and free up funds in your spending plan to meet other financial goals?
There are ways to lower your monthly mortgage payments, but they may not all be right for you. Furthermore, some require far more effort and expense than others, so it’s worth weighing the benefits and drawbacks of each option to make an informed decision.
1. 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 to 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.
2. Recast your mortgage
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.
3. Eliminate your PMI
You might also try to eliminate your private mortgage insurance (PMI). PMI is assessed by most lenders on conventional loans with down payments less than 20 percent of the purchase price. It costs homeowners between 0.58 percent and 1.86 percent of the loan amount each month, according to Urban Institute. However, you can request to have it removed once you have 20 percent equity in your home.
FHA loans are an exception to the rule, though. They require FHA mortgage insurance premium (MIP) payments for the life of the loan unless you made a down payment of at least 10 percent. In that case, you can request that FHA MIP be canceled once you complete the 11th year of mortgage payments on your current loan.
4. Modify your loan
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 instead of refinancing to get a longer loan term. 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 be too small to justify the eventual higher total cost of the loan due to paying interest for a longer period.
5. 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.
6. Shop around for a lower homeowners insurance rate
When was the last time you shopped around for homeowners insurance? Even if you haven’t had any issues with your current provider, better rates may be available elsewhere.
Consider shopping around with reputable providers to get quotes. Be sure to inquire about rate discounts that may be available to you. Also, review the rate quotes to ensure the coverages included are comparable to your current policy, and ask about other ways to curb costs, like increasing your deductible.
7. Apply for mortgage forbearance
A mortgage forbearance will help you find temporary relief by lowering or pausing your payments for a short period. You’ll also avoid adverse credit reporting, foreclosure and have time to get your finances in order. Be mindful that the lender will likely require you to prove you’re experiencing financial hardship before approving you for a mortgage forbearance.
Next steps for lowering your mortgage payment
If your mortgage payment is stretching your budget too, you don’t have to suffer in silence. Instead, consider reaching out to your lender to request a forbearance or modify your loan or refinancing if it makes financial sense. You can also have your home appraised to determine if you can have PMI canceled, contest your property tax bill or search for more affordable mortgage insurance.
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