How to Lower Your Mortgage Payments

How to Lower Your Mortgage Payments

Practical steps for cutting mortgage costs

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.

Think About an ARM. When rates are at their lows, it makes no sense to consider anything but a fixed-rate mortgage. With higher interest rates, adjustable rate mortgages or ARMS are 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.  

Consider 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. To figure out if it’s worth it to you, 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.

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.

Jean Chatzky

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