How to Lower Your Mortgage Payment

Are your mortgage payments leaving you crunched for cash? You may benefit
from refinancing.

If your financial circumstances have changed or you need to free up money for other purposes, you may want to consider refinancing your mortgage to lower your monthly payment. Of course, it’s important to weigh both the benefits and the risks. Benefits Perhaps you have an adjustable rate mortgage that will “reset” in the next few months to a higher rate, and continue to adjust every year. Or maybe today’s interest rates are lower than they were at the time when you took out your mortgage.

Refinancing may enable you to lock in better rate. Or maybe at the time you got your loan you were more optimistic than you should have been about how quickly you could afford to pay it off. Extending the term of the loan and paying it off more slowly could also reduce the amount you have to pay each month.

Risks
While you can save in the short-term by reducing your monthly payments, you may pay more in interest payments over the long-term if you extend your loan term and pay your mortgage off more slowly. There may also be financial penalties associated with a mortgage refinancing. Find out if there are, and whether the gain on the refinancing is greater than the cost.

Consider the following:

Extending the term
If you extend the term of a $100,000 mortgage at 6.25 percent interest from 15 years to 20 years, you could reduce your monthly payments by $126.49. But you will also end up paying an extra $21,086 in interest charges. Only you can decide if that’s an appropriate trade-off.

Lowering the interest rate
In the case of a $100,000 mortgage amortized over 30 years, you could reduce your monthly payments by $47.91 by refinancing from a 6.25 percent interest rate to a 5.5 percent interest rate. Plus, you’ll save $17,253 in interest charges over the life of the loan.

Combining options
It may be possible to opt to change both the term and the interest rate of your mortgage in order to lower the rate. Start by finding or negotiating the lowest possible interest rate, then calculate the term that brings your payment to a level that is acceptable to you.

Arranging a payment holiday
Some mortgages allow you to take a payment holiday. If your financial bind is likely to be only short-term, ask your lender if you can arrange a temporary suspension of payments.

Refinancing with an interest-only mortgage
You can reduce your monthly payments to the least possible amount by refinancing with an interest-only mortgage. The downside is that when the typical five- or 10-year interest-only period expires, your payments will increase considerably. In fact, they will be higher than they would have been if you had stayed with a conventional mortgage. This option is therefore only worth considering if you are experiencing a temporary financial squeeze but expect your financial situation to improve significantly in the future.

Downsizing your home
Did the thrill of the house hunt lead you to overextend yourself or be overly optimistic when it came to your finances? Realistically assess your finances and consider whether you can do with a smaller house. A more financially appropriate home may be in order.

Using the internet is a great way to get a low cost home mortgage refinancing loan quote. It only takes a few minutes to apply online for a refinance mortgage, and have competing loan offers come directly to you. If you're looking to get cash out of your home or a lower interest rate, then a mortgage refinancing quote may be just what you're looking for.