Strategies for Reducing Your Mortgage Installments
Lowering your mortgage payment can bring significant relief to homeowners, especially in times of financial hardship. Here are several strategies to help you reduce your monthly housing costs:
Refinancing
Refinancing your mortgage involves replacing your current loan with a new one, often to lower the interest rate, a longer term, or both. This can lead to substantial savings in monthly payments and total interest over the loan's lifetime, particularly if your current rate is above market rates (e.g., above 7%). However, refinancing comes with costs such as closing costs and the potential for resetting the loan term, which may increase total interest paid if extended.
Mortgage Recasting
Mortgage recasting is a less common but effective method for reducing monthly payments. If you can make a large lump-sum payment to your principal, your lender can recalculate your monthly payments based on the smaller balance without changing your interest rate or loan terms. This is ideal if you already have a good interest rate but want to reduce payments quickly with less paperwork than refinancing.
Eliminating Mortgage Insurance (PMI)
If your home's value has increased or you have built sufficient equity (usually 20%), you can request to cancel Private Mortgage Insurance (PMI), which lowers your monthly insurance portion.
Modifying Your Loan
Loan modification programs may be available to reduce your interest rate, extend your term, or change other terms, frequently for financial hardship cases. However, not every lender allows loan modifications, and there are stringent eligibility rules.
Lowering Property Taxes
Challenging your property tax assessment or appealing for exemptions/deductions applicable to you can effectively reduce the taxes portion of your mortgage payment.
Shopping for Homeowners Insurance
Insurance costs can vary, so comparing providers to find a better rate can lower your monthly mortgage payment if your policy is included in it.
Mortgage Forbearance
Mortgage forbearance can offer temporary relief by lowering or pausing payments for a short period, avoiding adverse credit reporting and foreclosure. However, the payments missed during forbearance must be paid eventually, either in a lump sum or over time with a repayment plan.
Each method has its pros and cons, and choosing the right option depends on your financial goals, current mortgage terms, interest rates, and whether you have additional funds available for recasting or refinancing costs.
If you're facing financial difficulties, it's essential to contact your mortgage servicer immediately for possible options such as refinancing, loan modification, repayment plans, forbearance, short-selling your home, or giving your home back through a deed-in-lieu of foreclosure. In some cases, you might need legal advice.
Remember, shopping around for homeowners insurance and appealing property tax assessments can lead to better rates and lower taxes, respectively. These strategies, along with the ones mentioned above, can help you manage your mortgage payments more effectively.
Managing personal-finance can involve reducing mortgage payments, and one effective way to do this is through refinancing, which can lower your interest rate or loan term, leading to savings in monthly payments and total interest over time. Another strategy is mortgage recasting, where making a large lump-sum payment to your principal can recalculate your monthly payments based on the smaller balance, ideal if you already have a good interest rate but want to reduce payments quickly.
