By: Joshua Campbell
How To Cut Down Your Mortgage Payments?
Tags: real estate, real estate advice, real estate tips, mortgage payments, cut down mortgage payments, real estate money, mortgage,
For most people, buying a house is the biggest purchase they’ll ever make, which is why a mortgage loan is needed to finance the property. Your mortgage payment is typically the largest monthly payment that you have. The size of the loan and the amount of interest paid each month can significantly impact your budget and how comfortably you’ll live after you move in. Many people can find themselves in a tight corner if their payment is too high. Not only can this cause stress, but it can hinder saving for retirement, for your child’s education, or maintaining your standard of living. Here are some ways to lower your monthly mortgage payment.
When You’re Looking To Buy:
This is the easiest solution. Putting down a larger down payment ultimately means you are borrowing and paying back less money. It’s best to put at least 20% down because then you won’t have to pay private mortgage insurance (PMI), which will also save you a large chunk of money.
- Put Down a Bigger Down Payment
When you’re in the closing process, you have the option of paying your PMI upfront as a one-time payment instead of having to pay it on top of your mortgage every year.
- Pay Your Private Mortgage Insurance Upfront
Credit scores are crucial for determining the type of interest rate you’ll get when seeking a mortgage. The higher the score, the lower the rate and mortgage payment.
- Improve Credit Scores
Banks offer ARMs that provide lower interest rates and lower monthly payments for a set period of time – typically three, five, or seven years. These can be temporary ways to get lower monthly payments. Keep in mind that this type of loan is tied to an index that can rise and fall depending on the economy and various financial market conditions.
- Opt for an Adjustable Rate Mortgage
Depending on your bank, you may be able to hold off paying off your balance immediately. With an interest-only mortgage, you first pay only the interest on the mortgage, and then second, begin paying off the actual principal balance plus interest. Keep in mind that if you have a 30-year mortgage and spend the first five years paying off the interest, although your monthly payments are low, you need to pay off the remainder over the course of the next 25 years. This type of mortgage is an option as long as you’re aware that you must increase your payments after the interest-only phase is over.
- Opt for an Interest-Only Mortgage
After You’ve Bought You Can:
This option is often called re-casting or re-amortizing and simply means extending your term. Most banks typically do this for a flat fee of approximately $250. If you extend your mortgage of 15 years to a mortgage of 30 years, your monthly payments will decrease. This is a good immediate solution, but keep in mind that you will end up paying more in interest over time.
- Extend Your Repayment Term
Many people who don’t want to extend look into this option. Refinancing your mortgage helps to ensure lower interest rates and (potentially) smaller monthly payments. Keep in mind that in order to refinance, you must be in good credit standing. If you’re not, look into the various ways one can improve their credit score.
- Refinance Your Mortgage
If you’re looking to get rid of your PMI, you need to repay enough of your mortgage so that you acquire a minimum of 20 percent equity. Once you have, the next step is to request that your bank drop your PMI. Be prepared for your bank to send an appraiser to your property to verify the equity in your home.
- Get Rid of Your PMI
- Consider Renting
Having a tenant can significantly reduce the cost of your monthly payments. Whether it’s a basement, a bedroom, or an addition, it might be worth your while. If the other options aren’t available at this immediate moment, any amount will help lower your monthly costs.
If you are looking for more help and advice about your house payments? Click here to take our Knowledge Broker quiz to get all your questions answered!
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JOSHUA CAMPBELL (@knowledgebrkr)
Real Estate Broker
Coldwell Banker The Real Estate Centre, Brokerage
249 Avenue Road • Newmarket, ON L3Y 1N8