Your home is an important part of your life. You want to make sure that you are getting it paid off each month so you can continue living there and having a nice roof over your head. While your home is important, you want to make sure that you are able to keep your home loan payments as low as possible along the way. But how can you do this?
There are a lot of ways that you can work to reduce your home loan payments and make sure that you are getting that mortgage gone as soon as possible. Some of these include:
Refinance to a Lower Rate
If it has been some time since you looked at your rates, now may be the time. If you see that rates are much lower than what you are paying, you will be able to do a refinance to get rid of some of that interest and make your payment lower.
Let’s say that the original loan that you have is at $225,000 at 4% for 30 years. For this one, you would pay about $1,074 a month for the mortgage. If you got a few years down the road and see that rates are lower, say 3.5%, you could get a new loan for the lower amount (the amount that you paid off on the loan) for 30 years and save $65 a month or $780 a year.
This may not seem like a lot, but it does add up. And some may find that the interest amounts will be lower, saving them even more money along the way. Do not do a cash-out refinance here and you will have a lower loan amount and a lower interest rate that can save you a lot of money.
Get Rid of the PMI
PMI, also known as private mortgage insurance, is a type of insurance that is meant to protect the bank, but doesn’t do much good for you. Most of the time when you purchase a home and do not put the full 20% down, you will need to pay the PMI until the loan equity level gets to the 20%.
There are a few ways to get rid of PMI after you have the mortgage. First, you can pay down the mortgage until you get 20% of it paid off. This can include whatever down payment that you put into the loan as well. Once that amount is reached, you will no longer need to pay PMI on the rest of the loan.
If you move into the home and the value goes up really quickly due to the market or some of the improvements that you do to the home, then you can ask the mortgage company to remove the PMI. They will often require you to pay for an appraisal to get this done, so make sure that the value of the home will reach that amount so you can save on PMI.
Since the PMI can cost up to 2% of the home each year, it can be nice to get it paid off and remove it from the loan. Saving $100 or more from the loan of the home each month can mean larger payments and will help you to get the loan paid off. At the very least, it cuts down on the amount you pay each month.
Re-Amortize Your Loan
This is a process that is sometimes known as recasting your loan. This works when you take a large payment and put it into your loan. When the amount is big enough, the lender will re-amortize the loan. Everything about the loan stays the same such as with the term and interest rate, but the monthly payment will be lower due to the big payment.
Not all mortgages will provide this so check whether this is an option. You can still make the big payment, but the term of the loan is shortened, rather than the payment lowered. Both can be beneficial to getting the loan paid off, but one allows you to pay less per month. Talk with your mortgage provider ahead of time to make sure that this is what will happen.
Pay Off More Each Month
If you pay more each month to the principal of your loan, it is possible to lower the mortgage payment each month, especially if you have an adjustable-rate mortgage. This is even a good way to shorten up the length of the loan. All you have to do for this one is to add a bit more to the mortgage payment right now. In a few years, this will result in a lower payment each month.
This does not work as well if you have a fixed-rate mortgage though. It will not reduce the amount that you are paying on the loan each month, but it will help to shorten the life of the loan so you can pay off the home faster. This means that it is possible to pay off a mortgage that is designed for 30 years in just 25.
You will need to take a look at your finances to see whether this is smart for you. It can make the loan more affordable and will ensure that you can get rid of the loan a little bit faster. It will depend on whether you have a fixed or an adjustable mortgage rate to determine whether you pay off the loan faster or if the monthly payments end up being less when you are done.
Taking Care of Your Mortgage Payment
The most important thing that you can do is make sure that you pay the mortgage each month. You want to take care of the mortgage and ensure that it does not get out of hand in the process. With some of the simple steps above, you will be able to maximize your mortgage payment and keep your payments as low as possible.