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
1. Ready, Set, Finance
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.
2. 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 year 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 15 year loan can help pay it down more quickly.
3. Say Goodbye to PMI
If you bought your home without putting down a 20% down payment, private mortgage insurance (PMI) is likely a 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.
4. 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 local expert to answer your questions and create a plan that’s best for you and your financial situation. At FirstBank Mortgage, our goal is to help our customers get to a better place – whether that’s in a new home or a new financial position.