For most Americans, a mortgage payment is their largest monthly obligation. Traditional lenders suggest that your monthly mortgage obligation is not over 28% of your gross income. Unfortunately, life happens to some of us; we lose a job, car accidents, illness or any other event that may cause havoc to our finances. If you have found yourself in a situation where you are robbing Peter to pay Paul each month, you may want to look at a way to lower your monthly mortgage payment.
Refinance at a lower interest rate
Refinancing at a lower interest rate seems to be the most common way to lower your monthly payment. For example, If you purchased a home in 2010 for $155,000 at an interest rate of 5.5% at 30 years, your monthly payment would be $880.00, if you refinanced at the balance at an interest rate of 3.89% for 30 years your monthly payment would be $649, total monthly savings of $232 a month. With total cash savings at year 15 of $41,760.00. The important thing to remember when refinancing is you will pay closing cost, in this particular example you could pay about $4,130. Your credit score will be a big deciding factor on whether or not refinancing is an option for you, the higher the FICO score, the lower interest rate you may receive.
Stop paying PMI
If you purchased your home and put down less than 20% of the purchase price for the down payment, you are most likely paying Private Mortgage Insurance, (PMI). PMI is the insurance that protects the lender if you fail to pay your mortgage. PMI may cost you anywhere from .5 percent to 1 percent of the loan amount each year. For example on a loan amount of $155,000, PMI may cost you up to $1,550.00 a year or $129.00 a month.
If you have built at least 20 percent equity in your home, you may request the lender to discontinue the PMI insurance. The lender will send an appraiser to your home to determine the current market value to determine the amount of equity in your home.
Reevaluating your Property Taxes
Many homeowners include their personal property taxes in their home loan using an escrow account. Personal property taxes are usually a significant amount of your monthly payment each month. The amount you are required to pay for the personal property value is based on the county’s tax assessment of your property. If you feel the amount you are paying is too high, the owner may request to have the property assessment reevaluated by the county’s tax assessor, if it comes back that it was originally valued too high you may ask them to lower the tax amount. If it is approved, then your yearly taxes will decrease, in return reduce the escrow amount you pay.
Take a look at what you are paying for home insurance premiums
Just like the personal property, many homeowners pay their home insurance premiums out of the escrow account. Homeowner’s insurance is a necessity when owning a home, but it can be expensive. Depending on how long you have owned your home you may not have looked at your homeowner’s insurance since you purchased your home. Many things are taken into consideration when quoting insurance, what jewelry you have in the home, did you add a security system to your home, multiple policy discounts, and Credit scores. If you feel you have had any changes it may be beneficial to request some quotes from various companies; it doesn’t hurt to get a quote.
Refinancing your home loan and home ownership will both require your credit score and could significantly affect the outcomes of saving you money. It is important to check your credit report for errors, make sure the information is reporting accurate and up to date. It could potentially save you thousands of dollars.