In this article
It is likely that your mortgage payment will be one of the highest monthly payments. Therefore, it makes sense to reduce this amount as much as possible. We will be looking at some ways to lower your monthly payments and pay them off quicker in this article.
This will allow us to take a closer look at the process using the sample mortgage.
Ways To Save on Your Mortgage
Mortgage for $200,000
$1,199 monthly principal & interest payment
Interest rate of 6%
Based on your actual loan facts and the timing of the change, the savings you see will depend on how much you are able to save.
1. You Can Make An Additional Payment Each Year
You can reduce the amount you pay each month by making an additional mortgage payment every year if you’re able. These extra payments will be applied to your principal and not the interest. This reduces your balance and also means you won’t have to pay interest for that month.
The Savings — $47,000
You can reduce your loan’s term by making one extra payment of $1199 each year and saving as much as $47,000 on interest payments.
2. Bi-Weekly Payments
A bi-weekly instalment plan is another way to start reducing your loan’s dollar cost. This means that half of your monthly mortgage payment is placed in a savings account each Friday or every payday. This account will be used to make monthly payments towards your mortgage. You will have made 13 full payments and 26 biweekly payments by the end of the year. The principal will receive an additional payment. These accounts will be managed by most people, but escrow services can help you manage your payments and escrow services can help.
Savings up to $47,000
Similar to making an additional annual payment (see above).
3. Reduce Your PMI
Mortgage insurance will often be required for many people. This is usually because they paid less than 20% down. You can request that your lender cancels mortgage insurance if the mortgage balance falls below 80% of the property’s value. If you have already paid a certain amount or your home’s value has increased suddenly, this can happen. This can help you save hundreds of dollars each month.
Savings — $130 per Month
You can save up to $130 per month if you only pay 5% of your home’s value as your initial payment, and a PMI of approximately 0.78%.
4. Fight for your Property Assessment
Each year, property taxes can amount to thousands of dollars. You can petition your assessor to challenge your assessment if you feel that your home’s value has declined over the past year. A lower tax assessment will significantly reduce your annual tax payments.
Savings — Variable.
It depends on the results of subsequent assessments. This can save you hundreds of thousands each year.
5. Recast Your Mortgage
If you have been making regular payments to your principal, some lenders may be willing to reset or restart your mortgage payment plan. The monthly payments will remain the same, but your mortgage term is shorter, if you contribute money to your balance. The payments will be reduced if you change the payment plan.
Savings — $120 per Month
A total of $20,000 can be deposited into the loan to reset the monthly payments to $1,079; this will save $120 per month.
6. Modification of a Loan
You may be eligible to modify the terms of your payment plan if you have fallen behind on payments or are in financial hardship. This will make it easier for you to pay your bills. This is intended to allow the borrower to stay in their home and continue to make payments. This type of payment plan is not available to everyone, but you can save a lot on your regular monthly payments. You can check the Making Home Affordable website to see if you are eligible for a modified plan.
Savings — Variable
You can use this to reduce your interest rate by 2%, increase the term of the loan to 40 years or lower the total principal.
7. Refinance your Mortgage
Refinancing a mortgage is the best way for borrowers to save money on mortgage payments. A lower rate can reduce your monthly payments and help you save interest. There are costs involved with this plan, so make sure to do the math. Zillow Mortgage Marketplace lets borrowers search for the best rates from lenders. Borrowers can also compare loan programs and rates, as well as read reviews. They can then calculate their costs and determine if refinancing is worth it. Loan rates are now lower than ever. If you haven’t refinanced yet, this is the perfect time.
Savings — $126 per Month
Your monthly payments can be cut by 5% on your interest rate. This will result in a $1,079 reduction and a $126 savings each month. Refinances that cost $5,000 or more will be repaid in 40 months.