How to Lower Your Mortgage Payments

Is there anything that you can do about mortgage costs, particularly in a high-interest-rate environment? The answer is yes, but you may have to wait for your opportunity and be ready to jump when it arrives. Here are five things to consider.

Mortgage Considerations

Think About an ARM

When rates are low, it makes no sense to consider anything but a fixed-rate mortgage.

Higher Interest Rate Environment

• Consider an adjustable-rate mortgage, or ARM, as it is worth a look. The initial interest rate on an ARM will be lower than a fixed-rate loan.
• Look at hybrid ARMs that have a fixed rate that will last as long as you expect to be in the home.  

Discount Points

With a new home purchase, you can reduce the ongoing cost of your mortgage by paying “discount points.” This is an upfront charge where paying 1% of your loan amount generally reduces the interest rate.

Are Discount Points Right for Me?

To figure out if it’s worth it to you, do the following:

• Divide the amount that you paid for your point (or points) by the monthly savings in dollars.
• The answer is the number of months you have to remain in the home to make it worthwhile.
• If you think you’ll move before that time has lapsed, don’t do it.

Mortgage Refinance

If you are already locked into a long-term fixed-rate loan when rates are in the 3-4% range, this isn’t going to be easy. But if you haven’t locked in a fixed rate, you may have an opportunity.

• Keep your eye on rates and compare them to yours.
• Keep in mind that there’s a cost to refinancing.
• It generally only makes sense when you can save at least one-half of one percent or more on your rate. 

Extend Your Term

If you took out a 15-year loan and it’s proving hard to keep up with, look into how much swapping into a 30-year loan will save you month-over-month. Yes, you’ll pay significantly more interest in the long run, but you may find relief month to month.

Get rid of PMI

If you put less than 20% down when you bought your home, you’re likely paying for private mortgage insurance or PMI. Once you hit the 20% equity mark, you can ask your lender to stop charging for it. When you hit 22% equity, the lender must do it automatically.