Home Financing How to Reduce Your Mortgage Payment on a Monthly Basis

How to Reduce Your Mortgage Payment on a Monthly Basis

How to Reduce Your Mortgage Payment on a Monthly Basis

If your monthly mortgage payment is becoming unaffordable, refinancing, canceling mortgage insurance, forbearance, and loan modification are all options.

Money is tight, and you’re looking for ways to cut costs. Because your mortgage payment is the largest portion of your income, it seems like a logical place to begin.

Here are some options for lowering your monthly mortgage payment, as well as important considerations for each.

Refinance to a lower interest rate

Refinancing your mortgage to take advantage of reduced interest rates is one option to minimize your monthly payment.

In order to qualify for a refinance, you must have sufficient home equity in addition to meeting other requirements. The equity in your property refers to the difference between the current market value and the outstanding mortgage balance. You should also be prepared to pay refinance closing costs.

According to conventional wisdom, refinancing is worthwhile if you can reduce your interest rate by one percentage point. Your monthly payment can be reduced by 0.5 to 0.75 percentage points, depending on how much the refinance will cost and when the costs will be recouped.

Refinance for a longer period of time

Another popular reason for refinancing is to gain more time to repay. If you’ve been making payments on a 30-year loan for a few years, you could refinance the remainder to 30 years. This would almost certainly result in a lower monthly payment.

However, refinancing into another 30-year mortgage will result in additional interest charges, especially if you’ve been making monthly payments for a long time. In order to minimize your monthly mortgage payments, thoroughly assess the benefits and drawbacks of this alternative.

Request a mortgage forbearance

If you suffer a short-term financial setback and are concerned about your ability to make your monthly mortgage payment, a forbearance agreement may provide temporary relief.

As part of your mortgage forbearance, your lender may allow you to postpone or lower your monthly payments. After the forbearance period ends, payments resume as usual, and you may be compelled to make up the difference.

If you want to apply for forbearance, you must contact your lender before missing a payment, not after.

Request a loan modification

A loan modification may be a possibility if you’ve fallen behind on your mortgage payments. This is when a lender restructures your loan in some way in order to reduce your monthly payment.

You don’t have to be behind on your mortgage payments to ask your lender for a loan modification. In fact, if you anticipate a reduction in income, such as the loss of a job or retirement, it’s a good idea to contact your lender about possible loan modifications ahead of time.

Mortgage insurance should be eliminated

FHA and some conventional loans both demand mortgage insurance. By removing your mortgage insurance premium, you will have a lower monthly payment.

To get rid of FHA mortgage insurance, you’ll likely need to refinance into a conventional loan.

To cancel private mortgage insurance (PMI), which is required on conventional loans with less than a 20% down payment, you must contact your lender and demonstrate sufficient equity. You can also refinance to remove PMI.