How To Decrease Your Monthly Home Mortgage Payment: Effective Methods
Refinancing enables you to reduce your mortgage payments.
If you are serious about it, refinancing your home loan might provide substantial financial benefits. Various refinancing options are available, and choosing the right one will help you maximize your financial savings.
Four ways to decrease your monthly mortgage payment using a refinancing feature:
- Refinancing to a lower interest rate
- Refinancing into a much longer loan period
- Alternating from an ARM to an FRM
- Using a little documentation, Streamline Refinance
Let’s examine each refinancing option in further detail.
Refinance to reduce interest rates
The major reason homeowners refinance is to minimize their mortgage interest rates. This decreases your monthly mortgage payments, but it does not end there. Additionally, it may save you thousands (or even tens of thousands) over the life of the loan. For instance, suppose you had a 30-year loan with a $200,000 debt and an interest rate of 3.75 percent, explains Eileen Derks, head of home loans at Manner Roadway.
If you refinance at an interest rate of 2.75 percent, you will reduce your monthly payment by about $100 and save $39,500 in interest payments over the life of the loan. If you’ve had your current mortgage for more than two years or if your financial situation has changed since you purchased your home, there’s a strong possibility you may qualify for a lower interest rate and large monthly reductions.
Extend the loan term.
Refinancing and extending your term, which is the amount of time you have to repay your loan, is another option. The advantage is that you will reduce your monthly payment and provide more money. Let’s imagine you have a current loan balance of $250,000 with an interest rate of 3.25 percent and 18 years remaining on loan. Your current monthly payment is around $1,532, notes Derks.
By refinancing to a new term of thirty years at the same interest rate of 3.25 percent, your new monthly payment would be around $1,088, resulting in additional monthly capital of approximately $442.
This strategy is effective even if you already have a low-interest rate. You may spend more on overall interest if you focus only on particulars. If your primary objective is to reduce your monthly mortgage payment, this may not matter.
Refinance to a house loan with a fixed rate
Perhaps you have an adjustable-rate mortgage (UPPER ARM) with a fixed rate for the loan’s first few years and a variable interest rate afterwards. While your price may drop, it may also increase, resulting in much higher monthly payments than you can comfortably afford.
If you refinance to a brand-new fixed-rate mortgage loan, you will avoid the stress of variable fees and will likely save more money over the life of the loan.
If you refinance to a new 20-year fixed-rate mortgage, which will not add any more years to your term, and lock in a 2.75 percent interest rate that includes your $4,000 in closing costs, your monthly payment will be $830. This would result in a $50 monthly savings compared to not refinancing.
Utilize Streamline Refinancing
Consider a Streamline Refinance available on several FHA, VA, and USDA home loans. This means you may refinance with little to no equity in your home and lock in a lower interest rate than you would with other types of reduced refinancing. With a Streamline Refinance, the lender cannot include closing costs in the loan’s balance. The interest rate and monthly repayment must be cut enough to make the loan beneficial for the borrower, including Derks.
Advantages of a lower monthly mortgage payment
According to Cindy Laffey, division partner and home mortgage coordinator at Inlanta Mortgage loan in Pewaukee, Wisconsin, the biggest advantage of lowering your monthly mortgage payment is that it frees up more family funds that may be used for a variety of purposes.
Laffey explains that saving money on your home loan may enable you to do the following:
- Pay off other high-interest loans and credit cards more quickly
- Create cost savings account for unanticipated expenses and home repairs.
- Increase your funds for schooling and retirement
- Much better management of rising real estate tax and homeowner’s insurance costs.
- If you need more monthly cash flow for these or other refinancing purposes, your house loan might be of great help.
Who receives a refinancing?
Several borrowers with an existing mortgage are eligible for refinancing. According to Khari Washington, mortgage loan broker and owner of 1st United Real Estate & Home loan, the requirements for refinancing a loan are comparable to the requirements for acquiring a home.
Washington asserts that a creditor will undoubtedly consider:
- Your ratio of debt to income (DTI).
- Your credit rating.
- The value of your home.
- The consistency of your revenue.
- Your current home’s value.
To determine whether a course of action is optimal for your situation, you must also appreciate the costs and rewards. Remember that you will be responsible for paying refinancing closing costs, which are normally 2 to 6 percent of the loan amount. The average refinancing closing expenses in the United States are $5,749, according to the most recent statistics from ClosingCorp, a property analytics and technology company.
Without refinancing, can I reduce my mortgage payment?
Refinancing is the primary way to reduce monthly mortgage payments. Certain homeowners might not qualify for refinancing.