For most homeowners, your mortgage is your greatest monthly expense. If monthly bills are weighing you
down, you’re probably
thinking about ways to trim your grocery budget, get rid of unneeded subscriptions or reduce your heating
and
cooling costs. All these tweaks can add up to big savings. But did you know that if you lower your
mortgage
interest payment, you’ll likely have the biggest impact on your budget and the amount of cash you have in
the
bank?
If your mortgage is feeling a little heavy,
check out these effective ways to lower your mortgage interest payment.
How to lower your mortgage interest payment
READY, SET, REFINANCE - If you have good credit,
refinancing is a great way to lower your monthly mortgage payment. This means you pay less interest –
and less money – over
the life of your loan. To qualify for refinancing, homeowners must typically have good credit. If your
credit
isn’t stellar, talk to your lender about government refinancing programs or other options that may make
it
possible.
Lengthen your loan
Depending on the number of years on your existing mortgage, you may be able to significantly reduce
monthly expenses by increasing
the term of your loan. If you have a 15 year mortgage, extending to a 30 term will cut down your
payment.
Going this route is not without drawbacks – your interest rate will likely go up. But if you’re looking
for
greater cash flow because of other expenses in your life, a longer term means more money in your pocket
at
the end of the month. Another upside? When you can, making additional payments on the mortgage as
though
you were on a 15year loan can help pay it down more quickly.
Say goodbye to PMI
If you bought your home
without putting down a 20% down payment, private mortgage insurance (PMI) is likely part of your loan.
PMI is a special type
of insurance that protects the lender against loss if you default on your loan and can add hundreds (or
even
thousands) to your mortgage each year.
But there’s good news!
There are ways to eliminate PMI if you have a conventional loan. The first
step is to repay enough of your
mortgage – enough to get at least 20% equity in your home. Once you do, you can ask your lender to
remove
PMI from your loan. It’s important to note that PMI doesn’t automatically come off your loan once
you’ve
reached 20% equity. You have to specifically request it. Borrowers should discuss with their lender if
they
have made additional principal payments or improvements that increased the value or feel the local
market
value has appreciated.
Another option for a conventional loan borrower
is to take care of PMI by paying the cost all at once, which generally
includes a one-time fee. Even though
the fee may be a large amount, it may lower your mortgage interest payment. Borrowers may also pay a
portion
of the single premium at closing and the remainder in their monthly payment. The result is a lower PMI
premium
and lower monthly total housing payment.
Pay down the principal
Although this is a long-term strategy,
making extra payments on your mortgage each month can help you lower your mortgage interest payment
over time. It also means
you’ll pay off your mortgage faster. What’s more, making double payments (or even adding a few hundred
dollars
to your payment each month) decreases the interest you pay over the life of your loan! These extra
payments
will build the equity you have in your home. They’ll get you to the 20% mark faster, so you can request
to
have PMI removed.
Get started on the right foot
It can be hard to wait
when you’re ready to buy a home. If you’re just beginning the process and looking for ways to keep your
mortgage payment
low, having the 20% down payment is a great first step. Setting a larger amount of money aside also
gives
you options when it comes time to decide how much you want to pay for your mortgage each month.
Even if you’ve been approved
and can afford a specific mortgage payment, a larger down payment lowers the amount of principal you
owe and removes PMI
costs that can add a large amount to your overall payment.
No matter what stage
of the home buying (or home owning) process you’re in now, it helps to have a trusted advisor to answer
your questions and
create a plan that’s best for you and your financial situation. At ConsumerDirect Mortgage, our goal is
to help
our customers get to a better place – whether that’s in new home or a new financial position.