Lower Your Mortgage Payment

What’s in a Mortgage Payment?

Before you start trying to lower your payment, you need to understand what a mortgage payment is. Your housing payment is made of a few different parts, each of which can be reduced through the right actions. Some fees apply to everyone, while other fees may be unique to your loan. In general, a mortgage payment includes:

• Principal. This is the amount that goes towards paying off the amount that you initially borrowed. If you pay more than you owe, you will usually be paying it towards the principle of the loan. Interest is calculated based on this principal, so paying off your principal faster is always a good idea.
• Interest. Many mortgages are “front-loaded,” which means you start by paying off more interest and less principle and eventually end up paying more principle and less interest. This isn’t always as harmful as it may seem, as mortgage interest is tax-deductible.
• Homeowner’s insurance. Some mortgages will require that you pay homeowner’s insurance directly to them. Though this is not part of the mortgage payment itself, it is paid into escrow at the same time as your housing payment. Homeowner’s insurance is required to protect your lender’s investment.
• Property tax. Mortgage lenders require that you pay property tax into escrow with your mortgage payments, to ensure that the property is safe from potentially being foreclosed upon by the state. Property tax is calculated based on the assessed value of your home, and it may change from year to year based on your location. If you want to reduce mortgage payment related fees, property tax may be the place to start.
• Private mortgage insurance. Mortgages with less than a 20% down payment will often require private mortgage insurance, which is used to insure the additional risk. There are some types of mortgages that don’t require private mortgage insurance.

Fine-tuning any of these five parts of your mortgage payment will ultimately lead to a lower house payment in total. It all depends on the resources available.

How to Lower Mortgage Payment After Buying

How to lower mortgage payment after buying is a little more difficult than lowering it before buying. If you’re trying to lower your current housing payments, you have the following options:

• Reduce your property tax. You may be paying too much in terms of property tax. You can reduce your property tax by getting a lower appraisal for your home or by ensuring that you’re getting the proper exemption. There are usually exemptions for owner occupants of properties. This can lower payments without impacting your mortgage.
• Refinance to lower monthly payment. You can refinance to lower monthly payment in two ways. One, you can refinance for lower interest rate, which will reduce your payments and the amount that you’ll pay throughout the loan. Two, you can refinance a loan for a longer period. If you only have 10 years left on your loan, you can refinance to 20 and reduce your payments by nearly half. A refinance for the lower interest rate is usually best if your credit score has significantly improved.
• Keep paying it down to eventually lower your mortgage payment. Once you hit the threshold of 20% down, your private mortgage insurance will disappear, and you will have a lower mortgage payment. If you’re currently close to this amount, putting more money towards your bill temporarily will eventually lead to a lower house payment overall.
• Get a different insurance company. Check with your lender to find out whether you can change your insurance company. Changing your insurance company or your insurance coverage will lead to a lower house payment.

Whether you choose to refinance to lower monthly payment or pay your loan until you no longer require private mortgage insurance, lower payments are valuable overall. Not only will you be able to save money every month, but you’ll look like a better borrower if you’re trying to borrow for further real estate investments.

How to Lower Mortgage Payment Before Buying

Before buying, you can lower your mortgage payment in a few different ways.

• Plan to pay a larger down payment to reduce mortgage payment monthly. If you can pay 20% down, you can drop your private mortgage insurance. The more you pay, the less you will need to borrow, which will also significantly reduce the amount you need to pay.
• Avoid private mortgage insurance altogether. If you can’t pay 20% down, you can instead avoid PMI entirely. There are some loan products, such as the Fannie Mae Home Path loan, that allows a low down payment but does not require PMI. This leads to a significantly lower mortgage payment.
• Pay for “points” on your mortgage loan to reduce mortgage payment. Even if you can’t qualify for the best interest rates, you can always pay for points. Paying for points means putting up some money upfront to reduce your interest rate. You reduce your interest rate over the entire term of the loan, saving you a lot of money both short-term and long-term.
• Get your own homeowner’s insurance. Some lenders will let you shop around for homeowner’s insurance if you provide them proof that you have insurance. This can be a way to save some money on coverage. You may be able to bundle your homeowner’s insurance coverage with other insurance policies to save more.
• Improve your credit score. If there’s any area in which you can improve your credit score, it may be worthwhile. Better credit leads to better interest rates, which can lead to a lower mortgage payment in addition to the total amount that you need to pay. This will also be important later if you want to refinance for a lower interest rate.