Strategies to Reduce Your Monthly Mortgage Expenses

For many, the mortgage is the largest monthly expense. Whether tightening your budget or reallocating funds for other uses, reducing this payment can provide significant financial relief. Here are eight strategies to consider that can help lower your mortgage payments.

1. Initial Steps at Closing

• Increase Your Down Payment: A larger initial down payment decreases the loan amount, thus reducing the monthly payments. Saving up to put more down upfront can delay your purchase but results in substantial long-term savings on interest and smaller monthly outlays.
• Improve Your Credit Score: Higher credit scores can secure lower interest rates, which translates into lower monthly payments. Before applying for a mortgage, focus on improving your credit by paying down debt and ensuring your credit report is free from errors.
• Select the Right Mortgage Type: Choosing between a fixed-rate and an adjustable-rate mortgage (ARM) or deciding between a 30-year and a 15-year mortgage can affect your payments. ARMs may offer lower initial rates, while 30-year mortgages provide smaller monthly payments compared to 15-year ones, though they cost more in total interest over the life of the loan.

2. Refinance Your Mortgage

• Extend Your Loan Term: Refinancing to a longer term spreads out payments, reducing the monthly amount. This can be especially beneficial if you’re struggling with cash flow but may increase the total interest paid over the lifespan of your mortgage.
• Secure a Lower Interest Rate: Refinancing for a lower rate can significantly decrease your monthly payments, especially if your credit situation has improved or market rates have dropped. Always compare current rates with your existing ones to see if refinancing makes financial sense.

3. Eliminate Private Mortgage Insurance (PMI)

• Build Equity: Once you achieve 20% equity, you can request to remove PMI, reducing your payment. PMI is automatically canceled at 22% equity, which can lower your monthly expenses significantly if you reached this equity milestone ahead of schedule through additional principal payments or home value appreciation.

4. Review Homeowners Insurance

• Shop for Better Rates: Periodically comparing insurance rates can reduce this portion of your mortgage payment if cheaper coverage is found. This can be an easy win as market rates for insurance can vary widely year to year and among providers.
• Ensure Adequate Coverage: While shopping for lower rates, ensure that you’re not sacrificing necessary coverage. Balancing cost and coverage is crucial to not only lowering payments but also maintaining adequate protection for your home.

5. Recast Your Mortgage

• Make a Large Payment: Paying a substantial lump sum towards your principal can allow for a recast of your mortgage, which recalculates your monthly payments based on the reduced balance, maintaining the original loan term and interest rate. This is a viable option if you’ve received a large amount of money, such as from an inheritance or sale of another property.

6. Challenge Property Taxes

• Dispute Assessments: If your property’s assessed value is overstated, successfully challenging it can reduce your property tax burden, thus lowering your escrow and monthly mortgage payment. It’s advisable to review your property tax statements and seek a reassessment if the value seems out of line with similar properties in your area.

7. Rent Out Space

• Generate Rental Income: Renting out a room or portion of your home can provide additional income to help cover mortgage costs, effectively easing your financial burden. This strategy requires managing tenants but can make a significant dent in your monthly expenses.

8. Mortgage Forbearance

• Temporary Relief: If you’re experiencing short-term financial difficulties, forbearance can reduce or suspend payments for a period, helping you manage immediate financial stress. It’s crucial to understand that forbearance is not loan forgiveness; you will still owe the payments, and interest may continue to accrue.

Conclusion

Multiple approaches can reduce the burden of your mortgage payment. Whether through refinancing, adjusting insurance, leveraging real estate equity, or even changing your tax assessment, each option offers a pathway to potentially lower monthly payments. Consider your personal financial situation and future goals to select the most appropriate methods for reducing your mortgage payments effectively.