The biggest monthly expenses you incur are your housing costs and mortgage payments. This is especially true this year (2024), when there is an exponential increase in mortgage loans and rates. According to the US Census Board, the usual monthly mortgage payment is around $1200. This figure still excludes extra payments linked to property taxes and homeowner’s insurance.
Fortunately, there are ways to reduce your monthly mortgage payments and settle your loans as quickly as possible. You can also use the tips mentioned here to save your mortgaged property.
How to Reduce Mortgage Payments?
You must reduce your mortgage payments to manageable levels to save your home. The rate should be something you can handle, so you will not be able to pay every month.
Refinance mortgage
Mortgage refinancing involves getting a new loan to settle your outstanding balances. Once your new loan application is approved, you can generate a new monthly payment below what you paid in the past.
What’s great about refinancing is that it also provides a chance to alter your loan terms and use a lower rate of interest. Both these methods will help you save a substantial amount on your mortgage.
However, mortgage refinancing usually involves fees that may affect your savings. Most loan providers also set their loan fees for refinancing, so you have to spend time shopping around to get the best deals.
Also, note that your credit score matters when deciding whether or not you should try refinancing. In most cases, you need a FICO score of at least 620. If you get a higher score than that, you can rest assured that you have a much better chance of getting a lower rate.
Commit to making an extra payment yearly.
You can also save mortgage payments by paying as much extra every year. Your extra payments will automatically apply to the principal instead of the interest.
Aside from reducing your outstanding or remaining balance, you do not need to pay the interest monthly on such principal from the remaining loan term. It is similar to paying your credit card debt. If you pay more than the minimum, your outstanding balance and interest will also get lower.
Fight the assessment of your property.
One thing to note about annual property taxes is that they could reach thousands of dollars. In case the value of your home has reduced in the past year without being properly accounted for in the assessment of your property task, it is possible to file a petition with your assessor so you can fight the assessment.
If you are successful in reducing the tax assessment, your annual taxes will also be lower. The amount you can save when doing this tip varies. It will depend on the property adjustment and local tax rate, but it could also grow up to hundreds of dollars yearly.
Take time to review your current budget.
An effective means of saving money on a mortgage is to settle payments as early as possible. This means you should settle it ahead of schedule. Take the time to examine your budget again to find out whether you can free up additional money every month that you can commit to paying for your home loan.
You can start by keeping track of your current spending. That way, you can see the flow of your money in a particular month. Simply reviewing your credit card and bank statements will let you discover the areas where you overspend, allowing you to identify the ones you should trim or get rid of.
If, after the review, you find out that you have no problem with your expenses, you can choose to look for a side hustle or gig. You may also ask for a raise from your employer to increase your income. While deciding on your next course of action, remind yourself that not all financial obligations or debts are created equally.
If your financial obligations include debts with higher rates of interest than your mortgage, you should consider prioritizing such accounts. Ensure that you do not neglect your future, too. This means that even non-urgent savings like retirement should be included in your priorities.
If you delay getting a retirement plan just so you have more room to pay for your mortgage, you will become financially incapable once you reach your golden years. You can prevent that by taking a closer look at your current budget and tweaking it as much as necessary. That way, you can remove unnecessary expenses and find out if you can apply such funds to your mortgage.
Consolidate your other financial obligations/debts.
Note that it is possible to settle your other loans as you refinance. If you decide to consolidate your loan payments, such as on car loans and credit card debts, and apply them to your mortgage, you get the chance to raise your amortization while keeping your monthly loan payments low. This is also a good solution for those who wish to apply for loans for bad credit.
Try removing mortgage insurance premiums.
Also called PMI (private mortgage insurance), these mortgage premiums can also substantially increase your monthly payments. If you drop this extra charge, a homeowner can save more than a hundred dollars monthly. The good news is that you can now easily remove PMI, thanks to the large equity gains that occurred throughout recent years.
You can also lower your monthly payment by cancelling your mortgage insurance premiums. If you are paying for private mortgage insurance, especially because the amount you apply is not more than 20 percent of the down payment, you can get rid of PMI if you request a home appraisal.
If the value of your home jumped dramatically from the first time you bought it, then it may qualify for the removal of PMI. Note that getting rid of PMI does not necessarily mean you should refinance. As soon as you reach the 20 per cent equity of your property, ask your lender to get rid of PMI:
When aiming to eliminate PMI, the following are among the points you should keep in mind:
- Your lender will most likely request a property appraisal if the 20% equity results from an increase in the value of your home or by making additional payments.
- If your normal payment lets you gain 20% equity without the need for extra payments, then it is highly likely that the lender will not request an appraisal.
- The lender must cancel (PMI) for the loan upon achieving the 22% equity based on the standard payment schedule.
Recast mortgage
If you are unfamiliar with mortgage recasting, note that it usually involves applying a big lump sum payment to the principal amount and retaining the maturity or payoff date. You can reduce your mortgage payment through the recast even if you do not refinance. In other words, ensuring the low mortgage rate is securely in place will be valuable.
This can change the loan’s re-amortization schedule and eventually lower the interest due and principal amount every month without refinancing. This makes this method low-cost but highly efficient.
Conclusion
With the continuous increase in mortgage rates this year, it is crucial to do something to lower yours. By reducing your mortgage payments, you have a much better chance of protecting your home since you can improve your capacity to pay them off monthly.