Lowering Mortgage Payments
When you own a house, paying the mortgage will probably be a considerable part of your expenses that you’ll have to do. There are some ways to lower these payments.
Get a lower interest rate
Interest rates heavily influence the mortgage payments. With a lower mortgage interest rate, the mortgage payments will generally also be lower. A $200,000 fixed-rate 30-year loan with an interest rate of 5% results in a monthly payment of $1.074. When the interest rate is 4%, then the monthly payments are $955. So, you would save $119 per month, and $42.773 in total in this example! You can make such calculations for your own situation with the mortgage payment calculator on this site.
It is wise to shop around with multiple banks and lenders concurrently and ask for their interest rates, fees and costs. Take your time to compare the mortage offers and negotiatiate with various lenders that are most interesting for your situation. Don’t keep staring only at one offer made by a bank you already know for years. Shopping around will take some time, but in the end it might save you thousands of dollars. You also can consider a mortgage broker, that can do such work for you, but bear in might that you have to pay mortgage broker fees. A mortgage lender or broker must provide a Good Faith Estimate (GFA) when you apply for a loan. It contains and estimation of fees and costs associated with the loan and must be provided within three business days.
Improve your credit score
You’ll also get lower interest rates when you have a better credit score. So when you have debt, make your payments on time. When you make your payments on time for a longer period, your credit score will increase. The older the credit problems are, the less they will be important for your credit score. Several organizations offer sending payment reminders to you to make it more easy not to forget payment. You can also check your credit report on errors. You can request a credit report annually for free on www.annualcreditreport.com. Make sure there are no late payments listed incorrectly and that the loan amounts are correct. When they are incorrect, you can contact the credit bureau and reporting agency.
Refinance your mortgage
When you already have mortgage and current interest rates are lower or your credit score has improved, you can consider to refinance your mortgage. You might be able to get a mortgage with better terms and conditions. Please note that for refinancing a mortgage is not done for free. It might cost you 3%-6% of the mortgage loan amount. You can talk with your current lender to refinance your mortgage. The lender he might be willing to reduce some of the fees for refinancing to keep you as their customer. Check the Federal Reserve refinancing webpage for more information.
Pay more upfront
When you are applying for a mortgage, consider to make a higher down payment, so you that have to borrow less. Borrowing less means that the interest you have to pay becomes less and your monthly payments are lower. Furthermore, a higher down payment decreases the Loan-To-Value ratio (e.g. ratio between the mortgage loan and the value of the home). When you have a Loan-To-Value ratio lower than or equal to 80%, you don’t need a PMI or Private Mortgage Insurance, which can save you hundreds of dollars.
Decrease loan term
You can also consider to decrease the loan term. You will pay more during your mortgage, but because you’ll repay the loan quicker you’ll spend less on your mortgage in the end.