Introduction
A mortgage payment is often the biggest monthly expense. For this reason, it is often a good idea to keep this cost as manageable as possible.
When applying for a mortgage it is important to remember that there are more monthly expenses than just the loan itself. There are a total of five key factors: PITIA (Principal, Interest, Taxes, Insurance, and Association Dues). There are also other costs to owning a home such as repairs and maintenance which should be taken into consideration too.
How To Lower Your Payments For Purchases
Reduce Your Purchase Price
This is the obvious solution. Reducing your purchase price will inherently lower your monthly mortgage payment. A lower purchase price results in both a lower loan amount and lower property taxes obligation.
Put More Money Down
This is the next most simple solution. Putting more money down directly lowers your loan amount which in turn lowers your monthly principal and interest payment. In other words, the more money you can put down, the lower your monthly payment will be. At an interest rate of 7%, each $100K down adds $665 a month to your monthly mortgage payment.
Buy Down The Interest Rate
- Putting down an extra $100K is simply not an option for everyone. Another way you can decrease your monthly payment is by buying down the interest rate. Paying points will reduce your interest rate in turn reducing your monthly payments
- Utilize unique programs
- ARMs – These offer a teaser rate that is lower than a traditional fixed option
- Temporary Rate Buydowns – These artificially lower your interest rate for the first couple of years
Avoid HOA Dues If Possible
HOA dues add an additional expense which can be avoided when searching for properties.
Extend The Mortgage Term (Length)
Lengthening the number of years on your mortgage will result in a lower monthly payment at the cost of paying more interest over the life of the loan. While we all want to pay off our homes as fast as possible, having a mortgage with a longer term is one way to keep the payment low. For example, a $400K 15-year mortgage at 7% has a monthly payment of $3,595.31 whereas a $400K 30-year mortgage has a monthly payment of $2,661.21.
How To Lower Your Payments For An Existing Mortgage
Recast Your Current Mortgage
If you are expecting a windfall in the near future, you can use that cash to reduce your monthly mortgage payments through a recast. To do this properly, it is important to contact your current loan servicer beforehand and make sure this is allowed. If so, they will have you pay down your loan balance and then they will recalculate your mortgage payment based on your remaining balance and loan term giving you a new lower monthly payment.
Refinance Your Current Mortgage
When you buy a home and get a mortgage, you are not always stuck with that loan for the entire term. Assuming your financial picture remains strong, it is sometimes possible to refinance into a lower rate later if interest rates decrease enough. This is what a large number of homeowners did during the recent “refinance boom” of 2020 and 2021. It is important to note this is not always an option.
Conclusion
While there are no magical ways to reduce your monthly mortgage payment, there are more than a few tools which can have a significant impact. Having a low monthly payment can help alleviate financial stress and allow individuals to have more money to save, invest, or spend elsewhere. If you have any questions feel free to call us at (760) 930-0569 and one of our loan officers will assist you.
