Top strategies for lowering your monthly home payments
Owning a home can be a significant financial commitment, and many homeowners are looking for ways to reduce their monthly payments.
Whether you’re struggling to keep up with mortgage bills, or simply want to free up some extra cash for other expenses, there are several strategies you can implement. In this article, we’ll explore effective ways to lower your monthly home payments, from refinancing to tax reductions.
Refinance your mortgage
Refinancing your mortgage can be one of the most impactful ways to reduce your monthly payments. Essentially, refinancing involves replacing your current mortgage with a new one, usually with better terms.
Why Refinance?
If your credit score has improved since you took out your mortgage, or if interest rates have dropped, you may qualify for a lower rate, which will directly lower your payments. Additionally, refinancing allows you to adjust the length of your loan. You could choose to extend the term to reduce monthly payments, or shorten it to pay off the loan faster and save on interest over time.
Working With a Mortgage Lender
When considering refinancing, it’s important to shop around for the best deal. Different lenders offer different rates, and a mortgage lender can guide you through the process to ensure you’re making a choice that aligns with your financial goals. Always be mindful of the closing costs and fees associated with refinancing, as these can offset some of the savings.
Refinancing may not always be the best option for everyone, but it’s worth considering if you can secure a lower interest rate or better loan terms.
Make extra payments or pay biweekly
If refinancing doesn’t suit your situation or isn’t an option, you might consider making extra payments toward your mortgage or switching to a biweekly payment plan.
Extra Payments
Making extra payments toward your mortgage can significantly reduce the amount of interest you pay over the life of the loan, and potentially shorten the loan term. You don’t have to make huge extra payments; even small contributions can make a difference. You can make additional payments on your principal whenever you have extra funds available, such as from a tax refund or work bonus.
Biweekly Payments
Alternatively, switching to a biweekly payment schedule could save you money in the long run. By splitting your monthly mortgage payment in half and paying every two weeks, you’ll end up making one extra payment per year. This doesn’t drastically increase your monthly payments, but it can reduce the principal faster, which lowers the interest you pay over time.
Negotiate a lower interest rate
Another method to reduce your monthly payments is negotiating a lower interest rate. If interest rates have dropped since you took out your mortgage, or if you’ve improved your credit score, you might be able to negotiate with your lender for a lower rate.
How to Negotiate
Start by comparing current interest rates offered by other lenders and presenting these offers to your current lender. They may be willing to match or beat the rate in order to keep your business. A lower interest rate directly impacts the amount of interest you’ll pay, thus lowering your monthly payment.
If you’re unsure how to approach your lender, consider seeking advice from a financial advisor or mortgage broker, who can help you negotiate the best terms.
Eliminate Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is a requirement for many homeowners who put down less than 20% when purchasing their home. PMI is an additional cost that protects the lender in case the borrower defaults. While PMI isn’t always avoidable at the time of purchase, it is possible to eliminate it once you’ve built sufficient equity in your home.
How to Eliminate PMI
Generally, if you’ve paid down your mortgage balance to 80% or less of your home’s current value, you may be able to request that your lender cancel PMI. Another option is to reach the 20% equity threshold through home improvements or market appreciation.
Eliminating PMI can reduce your monthly mortgage payment significantly, making this a strategy worth pursuing for many homeowners.
Lower property taxes
Property taxes are another monthly cost that can be significant, especially in areas with high tax rates. While you can’t directly control the rate at which your property is taxed, there are steps you can take to potentially lower your property tax bill.
Appeal Your Property Tax Assessment
If you believe your home is assessed at a value higher than it’s worth, you may be able to challenge the assessment. In many areas, homeowners can appeal their property tax assessment by presenting evidence that their home is valued incorrectly.
You can gather evidence such as recent sales of comparable homes in your area to make a case for a lower assessed value. Lowering your home’s assessment can lead to a reduction in property taxes, which in turn lowers your monthly payment.
Look for Tax Exemptions or Discounts
In some cases, local governments offer exemptions or discounts for certain homeowners, such as seniors or veterans. Research whether you qualify for any such programs and apply to reduce your property taxes.
Consider a loan modification
If you’re facing financial hardship and are unable to keep up with your mortgage payments, a loan modification may be an option. A loan modification is a permanent change to your mortgage terms, which can include a reduction in interest rate, extension of the loan term, or a reduction in the loan balance itself.
How Loan Modifications Work
Mortgage lenders may offer loan modifications to homeowners who are struggling to make payments. Typically, you’ll need to provide documentation of your financial situation to prove that you’re experiencing hardship. If approved, the lender will adjust your loan terms, which can lower your monthly payments.
While this can be an effective strategy, it is typically available only to those who are facing genuine financial difficulties and need long-term relief.
Reduce homeowners insurance costs
Your homeowners insurance is a necessary expense, but it doesn’t have to be as expensive as it is. Finding ways to reduce your insurance premiums can help lower your overall monthly housing payment.
Shop Around for Insurance
Just as with other forms of insurance, it’s a good idea to compare homeowners insurance policies to find the best deal. You can also consider raising your deductible, which may lower your premium. However, keep in mind that a higher deductible means you’ll pay more out of pocket if you need to file a claim.
Bundle Insurance Policies
Another way to save on homeowners insurance is by bundling your home and auto policies with the same insurer. Many insurance companies offer discounts for customers who have multiple policies with them.
Rent out part of your home
If you have extra space in your home, renting out a room or a basement apartment can be a practical way to reduce your monthly payments. Renting can provide a steady source of income, which can help cover part or all of your mortgage payments.
Consider Roommates or Short-Term Rentals
You can rent out a spare bedroom to a long-term roommate or even list it on short-term rental platforms like Airbnb, depending on local regulations. Either option can help you generate additional income to lower your overall housing costs.
Be Aware of Legal and Tax Implications
Before you start renting, make sure you’re aware of any local zoning laws, homeowner association rules, and tax implications that may apply.
There are plenty of options available for proactive homeowners
Reducing your monthly home payments requires a strategic approach, but there are plenty of options available for homeowners who are proactive about managing their finances.
Whether you choose to refinance your mortgage, negotiate better loan terms, or explore ways to reduce other housing-related costs, each step can contribute to lowering your overall monthly expenses. By understanding the options available to you and taking action, you can make your home more affordable and reduce the financial strain that comes with homeownership.
