April 8, 2016
At various times in life, your mortgage can seem overwhelming – either from the size of the monthly payments or the overall amount of interest you will pay. If you are looking for methods to save either way, here are a few suggestions:
- Consider Refinancing – Fixed interest rates are going up again, but they are still relatively low. Most analysts expect interest rates to continue to climb. If you have an adjustable-rate mortgage (ARM) and are facing a large increase in upcoming monthly payments, you may be able to save significant interest over the life of the loan by switching to a fixed loan, and possibly lower your monthly payments at the same time. Conversely, if you want to lower your current payment and do not expect to stay in your home for a long time, you may be able to find an ARM with a superior short-term rate.
In each case, you are making assumptions about future rates, and you should also consider all of the costs associated with refinancing to be sure this is the right approach for you. Online calculators can help you assess different scenarios.
If you qualify, consider federal programs such as HAMP or HARP (Home Affordable Modification and Refinancing Program, respectively) that are designed to assist homeowners to lower their monthly payments and/or total interest.
- Make Extra Principal Payments – If you can’t refinance but can spare a little extra money, make an extra payment directly toward the principal. This can yield a huge savings on interest.
For example, assume you have a $200,000, 30-year mortgage at a 4.6% fixed interest rate, with a monthly payment of $1025.29. By paying an extra $50/month over the life of the loan, you will save $18,293 in interest and pay the loan off almost three years early. Change that to an extra $100/month and you save $32,774.96 in interest costs and pay off the loan five years early.
Even periodic prepayments can have a drastic effect. Calculators are available online to help you see the effect of different prepayment amounts.
- Negotiate with Your Lender – If you are in a true financial hardship situation affecting your ability to pay your mortgage, such as unexpected medical bills, you can try negotiating directly with your lender. They may be able to modify your interest rate or terms, especially if your prior payment record has been stellar. Be prepared with all the documentation you need to prove hardship, including a family budget and review of all expenses.
- Cut Your PMI – PMI (Private Mortgage Insurance) is required for any mortgages with less than a 20% down payment. However, the 1998 Homeowners Protection Act allows you to notify the lender to cancel your PMI once you reach the point of 80% or less of your mortgage principal remaining (assuming you made your regular payments). This saves around 1-2% of the principal annually, or for a $200,000 mortgage, around $167-$333 per month.
- Check Home Assessment – If your home value has dropped since the last assessment (as many have) – you may be paying more in property taxes than you should. Do some online homework at your assessor’s office and real estate sites first; before asking for a reassessment, you should make sure the value has actually declined since the last assessment.
With a little attention and diligence, you may be able to lower your mortgage costs and put the savings to better use. Don’t hesitate to use any references, online or otherwise, that can help you with your savings goals. At MoneyTips, you will find many financial professionals who can make you feel like a winner in the mortgage game. Good luck!