Mortgage payments take up a significant part of your monthly income. When buying a home, how much of your paycheck goes to paying your home loan is therefore a significant point of consideration. Take note that it is not the only expense you’re going to have to answer to. There are your utility bills, your groceries, your credit card payments, etc.
So the question remains: is there any way I can lower my mortgage payments?
The answer is yes, and that applies to either before or after you made the home purchase.
Before you seal the deal, keep it in mind to utilize all the resources you can to arrive at a lower monthly housing payment. The following are effective tips to help you hit the aim:
- Choosing a cheaper house
One practical and sensible way to ensure a low mortgage payment is knowing your budget and how much you can allocate for a housing payment per month. Remember to take into account not just the principal and interest payments but also the taxes involved, the cost of private mortgage insurance, as well as the Homeowners Association fees, among others.
Use this number to calculate the estimate of your home price, with the loan term in mind. From the resulting limit, you can start looking for a home to buy. You do not have to buy to your limit, you can simply prefer to choose from the lower end of the range. If the house fits your bill, why not? You can always have the property improved when your finances make it possible or when the need presents itself later.
- Putting a higher down payment
Higher down payments could get you access to lower interest rates, and can help you get away from paying private mortgage insurance. Conventional mortgages usually require their borrowers to pay at least 5 to 20 percent of the home price as down payment. That means for a $250,000, you have to input around $12,500 to $50,000 as down payment. Failure to meet this could result to more costs either paid upfront or rolled into the loan, and included in your monthly mortgage payment calculation.
- Asking the seller to cover the PMI
Instead of asking the seller to reduce the asking price, you can instead negotiate and ask them to cover the cost of private mortgage insurance. That is if you are not able to make a large down payment on the home. By doing this, you could end up saving a few hundred dollars which was supposed to be siphoned by the monthly PMIs. It may seem insignificant but could sum up to a few thousand dollars of savings in total throughout the life of the loan.
- Paying for discount points
Paying for discount points allows you to reduce your interest rate by one percent off the loan’s balance per a single point. The discount limit is dependent on the kind of mortgage or home financing program you carry.
If you are already in the process of making your loan payments, yes, there are still ways you can employ to lower your monthly home loan payments. These include:
- Dropping your mortgage insurance
By the time you have earned at least 20 percent equity on your home, or your loan balance is already at 80 percent of the home’s original value, you now have the prerogative to drop your mortgage insurance payments.
Typically, this is automatically eliminated per your disclosure papers once your LTV ratio reaches 78 percent.
If interest rates have significantly dropped since you first took out your loan, refinancing may be the better option. It does not only help you lessen your mortgage rate, it also allows you to choose a different loan term. This is especially helpful when you experience a recent financial setback and extending your loan term (e.g. from 15 years to 30 years), other than lowered rates, can help you still manage paying your mortgage without the risk of foreclosure.
- Recasting your loan
Recasting is basically just asking your lender for a re-amortization of your loan. This is done by paying a sum to reduce your principal balance. From the remaining amount, the lender will then re-calibrate your payments resulting to a reduced monthly payment.
If you have some extra cash on hand, you can use it for the better – with longer term benefits by slapping it into your home investment.
Money is tricky, but effective hacks can certainly give you great rewards. If you know where to tinker and what to do, paying for mortgage and owning a home will be a less financially-taxing situation.