9 Ways to Lower Your Mortgage Payment

Here are nine ways you can lower your monthly mortgage payment.

If you’re a homeowner, your mortgage payment might be the largest financial obligation you have each month. An unmanageable mortgage payment can sap your monthly income and reduce your ability to save money, pay bills or otherwise meet your financial obligations.

Traditional lender expectations have suggested your housing expenses shouldn’t exceed 28% of your gross income. Here are nine ways you can reduce your monthly mortgage payment and get closer to that figure.

1. Refinance for a Lower Interest Rate

Refinancing your home can help you lower your interest rate, thereby lowering your monthly mortgage payment. Essentially, refinancing means you’re replacing your current mortgage with a new one.

Refinancing can require even more paperwork than you needed to buy your home. There are closing costs and other expenses that go into refinancing, so once you lower your payment, you’ll want to stay in your home at least long enough to break even on those costs. You’ll also need good credit to get beneficial interest rates. (Not sure where your credit stands? You can check two of your credit scores for free on Credit.com.)

2. Refinance for a Longer-Term Loan

You can also refinance to a longer-term loan, spreading the payments out over a longer time frame. If you’re desperate to reduce your payment, this is one viable option. However, you may want to avoid this scenario because you’ll end up paying more in interest over time.

3. Ditch Private Mortgage Insurance

Were you able to provide a down payment of at least 20% of your home’s value when you bought it? If not, you’re likely paying private mortgage insurance (PMI), which could be adding hundreds of dollars to your monthly payment. In many cases, that cost can be removed once you’ve paid off enough of your mortgage.

“Some loans allow borrowers to apply to have mortgage insurance removed from their loan once the loan drops below 80% of the market value of the property,” said Brian Davis, co-founder of SparkRental.com. “Contact your lender to ask about what’s required to remove mortgage insurance from your loan.”

4. Reassess Your Property Tax

Often homeowners are paying property tax on an inflated property valuation. If you can reassess your property’s value, you may be able to lower the amount of property tax you pay.

“Municipalities routinely assess property values on the high side to maximize their property tax revenue,” Davis said. “If your assessment looks high, submit an appeal to your municipality to lower the assessment, and therefore your property tax bill.”

5. Pay Extra Now to Lower Future Payments

Although it may seem counterintuitive, you can actually lower your mortgage payment later by paying extra now. Any extra cash you can put toward the principal will help you pay off the debt sooner and reduce future payments.

Of course, this is a long-term strategy, and you may not see lower payments for years. If you’re anxious to reduce your monthly mortgage payment now, this strategy may not be the best.

6. Rent Out a Room

If you have extra space, renting out a room can help you cover your mortgage.

“Not only will [a housemate] pay rent to cover a large portion of the mortgage, they’ll also pick up a percentage of the utility bills every month,” said Davis. “In some markets, market rent that a homeowner can charge a housemate will cover the vast majority of the mortgage payment.”

7. Put More Toward Your Down Payment

If you’re still searching for a home, you should know that the larger your down payment, the lower your monthly mortgage payment will be. If you can put at least 20% down, you’ll be paying less on interest and avoid the extra cost of PMI.

8. Find a Government Loan Modification Program

If you’re having trouble making your mortgage payments, there are a number of government programs that offer counseling and even refinancing assistance. The Home Affordable Refinance Program can help eligible homeowners with little or no equity refinance their mortgage. You can research the federal, state and local programs that may be available to you.

9. Request Relief From Your Lender

If you believe you are in danger of missing a mortgage payment or even losing your home, you will need to contact your loan provider. Your lender may be willing to negotiate a loan modification, changing the original terms of your loan to lower your monthly payments.

This will require a good deal of paperwork and persistence. It might also lead nowhere. Still, some lenders would rather adjust your monthly mortgage payment than go through the costly and time-consuming foreclosure process.

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Should I Co-Sign My Brother’s Mortgage?

co-sign a mortgage

Q. My credit has always been good, and my brother’s credit stinks. He just got married and they want to buy a house. I’m thinking of co-signing the mortgage. What do I need to consider? — Brother

A. It’s very kind of you to want to help your brother, but before you do, you need to understand that you’d be taking a pretty hefty risk.

As someone with good credit, you’ll improve your brother’s chances of getting a loan at favorable rates, and you’ll likely help him improve his credit, said Jeff Rossi, a certified financial planner with Peak Wealth Advisors in Holmdel, N.J.

But here are the pitfalls.

If your brother’s credit is bad, he has obviously had some credit missteps in the past, Rossi said.

“As a co-signer, you’re hoping and trusting that he has no further missteps for the next 30 years, assuming a 30-year mortgage,” Rossi said. “That’s a long time, and the only way you can get off of it is if he refinances or pays off the balance.”

As a co-signer, the mortgage will impact your credit, and as a financial planner, Rossi said he recommends people protect their credit scores at all costs.

“A degraded credit score can cost you future frustration and money,” he said. “My recommendation is to never co-sign something that you don’t have a vested interest in.”

He said the ultimate decision is always a personal one, but sometimes blood is thicker than water, so he understands why you would want to be a co-signer. Still, he cautions against it.

Co-signing a loan will make you equally responsible for the payment of the mortgage, and it will cause an immediate impact to your ability to obtain credit, Rossi said.

He said the immediate impact comes in the form of a higher debt-to-income (DTI) ratio, which is calculated by dividing your re-occurring monthly debt payment by your gross monthly income.

He offered this example: If your monthly re-occurring debt from your mortgage, student loans and car payments adds up to $1,800, and you earn $6,000 per month, your DTI is .30 or 30% (1800/6000). Add your brother’s $1,000 mortgage payment, and your DTI is now 46% (2800/6000).

“That can impact your ability to take on debt in the future,” Rossi said. “Most car loans look for a DTI of 36% or lower when considering loan applications, so expect an immediate impact if you’re planning to get a car loan in the future, and even more of an impact if you need a mortgage.”

Rossi said there are programs out there that may help your brother get a mortgage on his own. For example, there are Federal Housing Administration (FHA) loans are sold through FHA-approved lenders, which are insured by the federal government to reduce their risk of loss if a borrower defaults on their mortgage payments.

“The rates are generally a bit higher and come with some additional fees, but they’re more tolerant of borrowers with lower credit scores,” Rossi said. “Your best next step would be to have your brother speak to a mortgage broker with access to a variety of programs to see what type of loans he could secure on his own.”

[Editor’s Note: You can check your credit scores for free on Credit.com to see where you stand and how co-signing a loan might impact you.]

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