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.

Image: elenaleonova

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Renting Out Your Home? 9 Expenses You Can Write Off

Here are some tax deductions home renters should know about.

Home sharing through sites like Airbnb, VRBO and HomeAway are becoming more and more popular. My family jumped on the Airbnb hosting train recently, and we made a tidy little side income in January renting out our spare room. I won’t have to pay taxes on that income until next tax season, but I’m already wondering what expenses I can write off.

It turns out that lots of Airbnb host expenses are deductible, and those deductions work for other home-sharing services as well.

The Basics of Taxes & Home Sharing

Renting out a part of your home is similar to becoming a landlord for an entire property, and it’s a lot like running a small business. The general IRS rule is that you can deduct expenses that are “both ordinary and necessary” for your business. But you’ll pay taxes on any income that you earn over and above those deductions.

There’s one caveat: the 14-day rule. If you rent part or all of your primary residence to others for less than 15 days out of the year, you don’t have to report that rental income, but you can’t deduct any expenses.

If you really like being a host, though, and rent all or part of your home for 15 days or more, you’ll have to report the income. So you’ll want to take all the deductions you possibly can. When it comes to deductions for rentals, you need to be careful, though. You can only deduct expenses that were spent on your business.

So if you buy new bath towels that your renters just happen to use in your shared bathroom, you can’t deduct the full cost of the bath towels. But if you buy linens just for your Airbnb renters, you can deduct the full cost.

With that in mind, below are some expenses you might deduct.

9 Expenses You Could Deduct

1. Service Fees: Most short-term rental services charge hosts a fee that comes off the top of the rent paid by the guest. Even if this fee comes out of the guest payment before it hits your bank account, you can deduct it as a business expense.

2. Advertising Fees: If you pay for any advertising outside of that offered by the rental company (and, therefore, covered with your service fees), deduct those expenses.

3. Cleaning & Maintenance Fees: If you buy cleaning supplies for your rental room, deduct those. If you pay a professional for cleaning, deduct that expense, too. Any maintenance costs related to the rental property are also deductible. If you pay for whole-house maintenance, such as a furnace tune-up or a roof replacement, a part of that cost will be deductible.

4. Utilities: If you’re only renting part of your home part of the time, you’ll split the utilities — part as a personal expense and part as a business expense that can be deducted.

5. Property Insurance: If you need to pay more insurance on your home because of having renters present, you can deduct the extra cost. Even if your property insurance fees haven’t increased, you can write off part of the expense as a business expense.

6. Property Taxes: The same goes for property taxes: You can write off the portion of your property taxes equal to the portion of your home being rented.

7. Trash Removal Services: Services that you pay the municipality for can be deducted, because they’re both reasonable and necessary.

8. Property Improvements: You can deduct the cost — or the interest paid on a loan, if you don’t pay cash — of improvements made to the property if those apply to the rented area.

9. Furniture, Linens & Food: You presumably provide guests with at least a couch, if not a bed. If you buy new furniture for your guest room, you can deduct that. You can also deduct the cost of linens, curtains, shower supplies, or food that you provide to your guests.

Splitting the Expenses

Unless you’re renting your whole home for the full year, you’ll need to prorate these deductions. In short, you can only deduct these expenses when they actually apply to the rental space while it’s being rented.

As you can see, things can get hairy! If you decide to host through Airbnb or another similar service this year, here’s what you need to do:

  • Keep detailed records. Know exactly when you had renters and for how much. Keep all your receipts related to expenses for the rental, or for improvements or utilities for your whole house.
  • Know your local laws. In some cases, you may have to pay additional local taxes when you do a short-term rental. Get familiar with those laws, which vary by state and locality.
  • Get a professional to help. Because these issues are so complex, it’s best to consult with a tax professional about your rental income, especially if you made a decent amount of money through the year. You want to take all the deductions you can to lower your tax bill. But you also want to make sure you’re doing it legally.

Image: vgajic

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