You’ve bought and moved into your dream home. You’ve settled into monthly mortgage payments but realize they take a sizable amount of your take-home pay. Perhaps you simply want some financial breathing room, or maybe you’ve had unexpected costs rear since you bought your home—a new furnace to buy or roof repairs that can’t wait.
Whatever the reason, if you are wondering how to lower your mortgage payment, you are not alone. Plenty of homeowners wonder the same thing. Check out these eight best tips on how to lower your mortgage payment:
1. Analyze Your Starting Point
You’ve likely heard the advice from money experts, that creating and keeping to a monthly budget is the only way to stay on top of your finances. Rather than shy away from what might feel like a tedious task, use it as a chance to fully understand where your money is going.
You may discover that incidental expenses are taking more of your monthly ‘cushion’ than you would like. On the other hand, you may find out that you are doing pretty well, but a lower monthly mortgage could help you to save for rainy day funds or even a vacation.
2. Get Aggressive on Your Mortgage
Most mortgage lenders will allow you to make lump sum payment, to a certain percentage of the total loan. If you have funds you can dedicate to your mortgage—perhaps an inheritance or a savings account you are willing to put against your mortgage—think about making a lump sum payment.
This payment will be made entirely against the principal, not used for interest. In short, you will end up paying less monthly when the interest owing is calculated against a smaller amount. Be sure to speak to your mortgage provider, as lump sum payments are often restricted with respect to timing and amount.
3. Speak to Your Mortgage Lender
If your mortgage is held with one of the big banks, speak to them about payment reduction options. Many offer short-term relief programs for temporary reductions, given a change in your work status and income.
Private second mortgage lenders will offer similar programs, as well. In either case, make sure you ask for details around the interest you will pay and if you will end up paying any penalties.
4. Check Your Rate
Depending on whether your mortgage is locked in with a fixed or variable interest rate for your current term, you will have different options. If you have a fixed-rate mortgage, for example, you have a stable interest rate over the course of the term, with an additional amount applied to interest. Generally, a fixed rate mortgage gives peace of mind—a stable monthly payment—in exchange for a slightly higher rate.
If you have a variable-rate mortgage, the amount of principal you pay varies, depending on current interest rates. With a variable mortgage, you may be able to reduce your payment if you’ve been paying more than the minimum amount required.
5. Consider Refinancing
The idea of refinancing your mortgage may be tempting. In short, refinancing allows you to extend the amortization of your mortgage loan, allowing you to have lower monthly payments. Be careful with this strategy, however, which essentially increases the amount of interest you will pay over time.
In addition, you will likely encounter penalty fees for breaking your existing mortgage term, if it is not done at the end of your term.
6. Opt for Interest-Only
Although an interest-only mortgage is a bad idea for most homeowners, they are an option, should you reach a patch in life where you need lower monthly payments.
Essentially, an interest-only mortgage leaves your principal owing untouched, while you make monthly interest payments. Interest-only mortgages are considered higher-risk and prevent you from gaining equity in your own home.
7. Do Your Research
Perhaps the simplest way to reduce your monthly mortgage amounts, without financial penalty, is to renegotiate your mortgage at the end of its term. Consider using a mortgage broker, or do some legwork yourself, to compare rates and terms between lenders.
Sometimes, a smaller lender can offer you a better rate and better conditions with the security and peace of mind of a larger lender.
8. Emergency Use Options
While it isn’t exactly a plan to lower your monthly payments, you might find short-term mortgage relief by asking your lender if they offer an option to skip a payment, should an emergency arise. Keep in mind, there are financial consequences to this option, as you still have to pay interest for the month, which will likely be added back onto the total mortgage amount.
Sometimes life sneaks up on you. You may be debating whether or not to accept a job opportunity or simply caught off guard by a sudden change in your finances. If you find yourself wondering how to lower your mortgage payment, you have several options to explore. Be sure to speak with your financial advisor to see which solution will work best for you in the long run.