There are two kinds of homebuyers: those for whom the sales price is the main consideration, and those who are mostly concerned with what it will cost them per month. If you’ve already bought a house, there isn’t anything you can do about the sales price. But there may be ways to lower what you shell out monthly. Want to lower your mortgage payment? Here are a few ways to do it.
Get Rid Of Your Private Mortgage Insurance (PMI)
“PMI is the lender’s (bank’s) protection in the event that you default on your primary mortgage and no longer make payments and the home ends up going into foreclosure,” “If the borrower is unable to put down 20 percent or more, or does not have the required funds to do so, then lenders will typically look at the loan as a riskier investment for their balance sheet and will require a PMI payment from the borrower.”
That means you end up paying a premium above and beyond your principal, interest, and homeowner’s insurance—currently about 1.35 percent. On a $200,000 loan, we’re talking about $2,350 a year. Remove your PMI, and that’s $195 a month in your pocket.
If house prices have been rising in your area, you’ve been in your home for at least two years, and you think your equity in your home has increased, talk to your lender.
Lower Your PMI
If you can’t yet get rid of your PMI, you may be able to lower it. In January 2015, the government announced lower PMI rates for buyers taking out Federal Housing Administration (FHA) loans. This change is expected to save more than two million FHA homeowners about $900 a year and allow about 250,000 consumers to buy their first homes in the next three years, according to a news release from the U.S. Department of Housing and Urban Development, Hundreds of dollars in savings makes a big difference in the finances for first-time homebuyers who couldn’t afford to make a 20 percent down payment.” New homebuyers can take advantage of the lowered PMI; existing homeowners who want to lower their PMI will need to refinance.
Lowering your PMI is far from the only advantage of refinancing. Taking advantage of low rates means you could save substantial dollars on your mortgage payment. “Depending on loan size, a rate reduction of as little as a half point can save some real money,” said Fox Business. If you are currently paying on a 15-year mortgage, switching to a 30-year loan can save you hundreds of dollars monthly. Check out this comparison calculator to see your particular scenario.
If you’re in an area that is declining and can’t refinance by traditional means, check out a HARP refinance. “The Home Affordable Refinance Program (HARP) through the U.S government may be the answer to your financial woes.
According to the HARP fact sheet, if you don’t qualify for a conventional refinance, a program through HARP may help lower your mortgage payments through refinancing to a lower rate or a more stable mortgage product
Buy Down Your Rate
If you’re just buying a home, your lender may have already talked to you about buying down your rate. If you can swing it, a little more money upfront for a lower interest rate can save you money. Sometimes, your lender might also be able to help you buy down you rate.
“You can typically purchase one discount point for one percent of the cost of your mortgage, with most lenders limiting you to the purchase of three points, Each point will reduce your rate by 0.125 to 0.25 percent, for the life of your loan. That can mean some serious savings and a modest reduction in your monthly payment.”
Monthly principal and interest on a $300,000 mortgage at a 4.27 percent conventional rate is $1479.34. Buying down the rate by one point to 4.02 percent lowers the payment to and the payment to $1435.70.
Get a Tenant
Have an extra room, preferably one in a private location with its own entry? Take on a roommate or a border and collect some rent.
According to US News, renting is an effective way to solve a cash flow problem. When people can’t afford to buy homes, they rent. More demand means you can get more for your spare room.