Three ways to lower your mortgage payment
Who wants to pay more when you can pay less? Of course you want to lower your mortgage payments.
It’s worth looking into reducing your mortgage payments. But, be aware that there are sometimes trade offs in getting a lower mortgage payment that can actually cost you more money than you save.
Here are three ways to lower your mortgage payments, and what to look out for.
1. Refinance into a lower rate
This is the most well known way to reduce your mortgage payment. When interest rates go down, you can save money. Just a 1/2 a percent can make a nice difference in your payment. It’s good to be aware of your interest rate and the type of loan that you have so you can look out for refinance opportunities.
Be aware that refinancing carries fees. Every time you make a change to your mortgage, you pay fees which can eat up the difference you save. Make sure to take into account the total cost of the refinance including the fees, not just the monthly savings, to see if it actually makes sense.
2. Refinance into a different product
Let’s say that you have a 30 year fixed mortgage and you have unexpected expenses that put a lot of pressure on your finances. You might seek a way to reduce what is probably your largest expense: your mortgage. Even if interest rates haven’t gone down below your interest rate, there may be other mortgage products that offer lower rates for a certain period of time. Products that offer lower rates are often adjustable rate mortgages, which means that they will have a lower interest rate for a certain period of time, and then adjust to a higher interest rate and monthly payment amount. This can be a temporary solution for reducing your payment.
Be aware that refinancing into an adjustable rate mortgage means that you’ll likely need to refinance again before the adjustment period. The longer the period until adjustment, the higher the interest rate. In this case, you want to make sure you weigh the risk of having to refinance again with the benefits you get from the lower payment. And, with any refinance, you want to make sure you take into account the fees you pay into the total savings to make sure it makes sense.
3. Refinance into a longer term
If you have paid down a portion of your mortgage, you can take your loan balance and refinance it into a longer term mortgage. This will cause you to pay more in interest, but it will also reduce your mortgage payment.
Be aware that the trade off for extending your mortgage term is that you will build equity slower and pay more in interest. And, as with any refinance, take into account the fees you pay to refinance, to make sure it is worth doing.
Want help in determining if refinancing makes sense for you? Check out our book: Avoid the Money Pit, Turn Your Home Into a Financial Powerhouse.