Your mortgage is one of the biggest expenses you’ll face. Every month, you’ll be paying hundreds to thousands of dollars to make loan installments and retain ownership of the property. Accordingly, millions of homeowners are interested in the possibility of reducing their mortgage payments—but they may not know how to do it.
How to Lower Your Mortgage Payments
There are several possible ways to lower your mortgage payments, including:
- Move to a smaller house. You may not like the thought of packing up and moving to a smaller house or one in a different neighborhood, but it could have a dramatic impact on what you’re paying every month. If you’re currently paying off a loan of $200,000, and you move to a house where you only have to borrow $100,000, you could cut your payments nearly in half. And depending on where and how you move, you might not be giving up much space or quality of life.
- Use an offset home loan. You could also use an offset home loan. This financial instrument is a home loan that attempts to combine the advantages of a traditional mortgage with those of a deposit account. Essentially, you’ll keep money in a deposit account with the same bank lending you the money for your home; this money “offsets” what you owe on the mortgage, thereby lowering the interest payments that are due. Note that offset home loans are common in many areas of the world but aren’t available in the United States due to tax laws.
- Refinance for a lower rate. Refinancing is a viable option if you’re unhappy with the current interest rate of your loan, or if you think you can get a better rate. Your interest rate is the amount of money you pay on the principal each year, so even a 1-percent drop can be significant. Consider refinancing and getting a lower interest rate—just make sure you get a fixed rate so it’s locked in.
- Refinance for a longer-term. Similarly, you may consider refinancing for a longer term to ease the monthly burden you face. There are many advantages to taking on a 15-year mortgage, with the most notable being the ability to pay off the home sooner, but it will increase the money you pay monthly. Extending those terms to 30 years will reduce your monthly payments.
- Apply for forbearance. If you face a sudden change of financial circumstances, you may be able to apply for forbearance with your bank. For example, if you suddenly lose your job, if you’re unable to work due to an injury, or if you face some other massive, necessary expense, you may be rendered unable to pay your mortgage—at least temporarily. Forbearance is a way to temporarily suspend or reduce your monthly mortgage payments until you’re back on your feet. Just be aware that this is a temporary measure and you’ll be responsible for making up the difference eventually.
- Eliminate PMI. Private mortgage insurance (PMI) is an extra fee that you’ll pay every month if you don’t have enough equity in the home. Different banks may have different requirements for the threshold to avoid PMI, but for many institutions, this is 20 percent. If you can increase your total equity in the home to 20 percent or higher, you can get rid of PMI entirely—though of course, this may be challenging to do if you’re in a financially precarious position.
- Reduce your insurance rate. Your mortgage likely includes your monthly payments to your home insurance company. There are some things you can do to reduce that rate. For example, you can improve the safety of your home by investing in smoke detectors, fire extinguishers, and a security system. You may also be able to find a lower rate with a different insurance company.
- Challenge your tax assessment. Your property taxes may also be part of your mortgage payment. Consider challenging the tax assessment on your property to get this rate lowered.
Other Ways to Make Up the Difference
If you’ve been unable to reduce your mortgage payments, or if you’ve reduced your mortgage payments and you’re still financially struggling, you’ll need to come up with another strategy to improve your financial health. This could mean cutting expenses in other areas; for example, are there subscriptions you can eliminate? Are you able to take public transportation instead of owning a personal vehicle? It could also mean picking up a side gig or changing careers to increase your income.
It may not be easy to improve your financial position, but it’s always possible. Start by trying to lower your mortgage payments and continue making changes from there.