How To Lower Your Mortgage Payment – Pas Trusted News

For most people, housing is their biggest monthly expense. And if your mortgage occupies too much space in your budget, you might be looking for ways to lower your payments. Luckily, solutions exist — and some of them are rather simple and cost-effective.

If you have a conventional mortgage and you put less than 20% down when buying your home, you’re probably paying private mortgage insurance (PMI). Unlike homeowners insurance, PMI does nothing to protect you financially. Instead, it’s meant to reimburse the mortgage lender if you stop making your payments.

Most of the time, PMI is a fee your mortgage company adds to your total monthly payment. Depending on your loan amount and what your credit score was when you purchased the house, PMI can add hundreds of dollars to your monthly bill.

The good news is that you can eventually get rid of PMI by building enough equity in your home. Your mortgage lender will automatically cancel your mortgage insurance once you reach 22% equity. If you don’t want to wait that long, you can request your lender in writing to drop the PMI requirement when you reach 20% equity. Meeting certain criteria, such as having a good payment history and no second mortgage, can increase your chances of dumping your PMI at 20%, but it’s not guaranteed.

Note that if you have an FHA loan, you can’t request to cancel your mortgage insurance premium (MIP). If your down payment was at least 10%, you’ll pay MIP for the first 11 years of your mortgage. If it was less, you’ll pay MIP for the life of the loan. The only way to get rid of these fees earlier is to refinance your FHA loan into a conventional loan.

Speaking of refinancing, it can also be a way to lower your mortgage payment. Refinancing involves taking out a new mortgage on your property to replace your current loan. Ideally, you can get a lower interest rate and significantly decrease your monthly payment. However, that’s not always the case — and the process itself is often expensive.

Mortgage rates fluctuate based on factors outside of a homeowner’s control, such as inflation, Federal Reserve monetary policy and the housing market conditions, among others. If the average interest rate on refinancing is higher than what you currently pay, this solution isn’t likely to bring you any savings.

Besides, the terms you’ll get depend on your credit history and how much equity you have in your home. For instance, if your credit leaves a lot to be desired and you have less than 20% in equity, the lender might consider you a risky borrower. You may still qualify for refinancing, but the lender won’t be able to give you the best rate.

Finally, remember that refinancing means taking on a new mortgage loan. This means paying closing costs (typically, between 2% and 6% of the loan amount). Needless to say, it can be a significant sum. You’ll have to find the break-even point to determine when refinancing will start saving you more money than you’ve spent on it. You can use a refinance break-even calculator to figure out how many months or years it will take. Ask yourself whether you’re planning to live in your home for that long.

If the conditions are right and you’ve come to the conclusion refinancing is the right choice, make sure to shop around for lenders so you can pick the best terms. CNBC Select recommends Ally Bank if you’re looking to save on lender fees. You can get a custom quote online with no impact on your credit score. Better is another excellent option — you’ll pay no origination fees and can receive up to $3,500 in credits to offset some of the closing costs.

Ally Home

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Fixed-rate, adjustable-rate and jumbo loans available

  • Fixed-rate Terms

  • Adjustable-rate Terms

    5/6 ARM, 7/6 ARM, 10/6 ARM

  • Credit needed

See our methodology, terms apply. Mortgage Refinance

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loan, FHA loan and jumbo loan

  • Fixed-rate Terms

  • Adjustable-rate Terms

  • Credit needed

See our methodology, terms apply.

If you already have a low interest rate on your conventional loan and refinancing doesn’t make sense for you, look into recasting your mortgage. When you recast your loan, you make a large lump-sum payment toward the balance. Your lender re-amortizes your mortgage, decreasing the balance while other terms of your loan remain the same. As a result, you owe less in interest and pay lower monthly payments.

Unlike with refinancing, there are no closing costs. However, the lender may charge an administrative fee which is usually a few hundred dollars.

To be eligible for recasting with your lender, you’ll probably need to meet a few requirements, such as having enough equity in your home and a large enough lump-sum payment. Rules can vary by lender. Additionally, note that not all lenders provide the recasting option. If your lender doesn’t advertise it, get in touch and see if it’s available.

If you pay your homeowners insurance monthly (as opposed to annually), you have more flexibility to switch your homeowners insurance company if you find a better deal with a different carrier.

Gather quotes from multiple companies and do some comparison shopping. Make sure to pay attention to other aspects, such as the carrier’s customer service and reliability. You don’t want to end up with a provider that will take a long time to respond or is notorious for not paying reasonable claims.

CNBC Select picked Nationwide as the best overall homeowners insurance company. Coincidentally, it’s also our top choice for the most affordable companies. Besides generally low premiums, you can also qualify for one of their many discounts.

Nationwide Homeowners Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • Maximum coverage

  • App available

  • Policy highlights

    Policy covers home and property damages caused by theft, fire and weather damage. It also covers personal liability, loss of use and unauthorized transactions on your credit card

  • Does not cover

    Water damage, earthquakes, flood insurance, identity theft, high-value items, rebuilding home after loss (these can all be purchased as add-ons for extra coverage)

See our methodology, terms apply.

Before you switch, check with your current insurance company if they charge a cancellation fee for terminating coverage early. If they do, consider whether the savings will offset the fee. Finally, make sure your new policy is in place before the old one ends to avoid a lapse in coverage — which can lead to higher insurance rates.

If you can’t afford your mortgage payments due to a major life event, such as losing your job, you may qualify for a mortgage loan modification. The program changes the terms of your home loan to help you avoid foreclosure. This can include lowering your interest rate, extending the repayment term or even reducing the principal balance.

Consider mortgage forbearance

A mortgage modification permanently adjusts your payments. If you’re only looking for temporary relief, consider forbearance which reduces or even pauses your mortgage payments for a period. Keep in mind that you’ll need to repay all the suspended or late payments once the period is over.

The loan modification process and requirements vary by lender. Most likely, you’ll need to provide information demonstrating your financial situation like documentation about your income and total mortgage payments. After you submit an application, the lender might require that you complete a trial payment plan to prove your ability to make consistent payments. If you succeed and get approved, you’ll receive an offer outlining the terms of the modified loan.

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