In this article
Your mortgage is most likely one of the largest monthly payments you will have so it makes sense to lower this cost as much as you can. In the following article, we will take a closer look at a few ways that you can decrease your monthly payments to pay them off faster.
We Will Take a Closer Look at How This Will Work by Using The Mortgage Sample
$1,199 monthly principal and interest payment
6% interest rate
30-year fixed rate mortgage
The savings you will see will be based on the actual loan facts you have and the timing of the change.
1. Make an Extra Payment Each Year
If you can, one of the very best ways to lower the amount of mortgage you are paying each month will be to make an extra mortgage payment each year. These extra payments are applied to your principal automatically and not to the interest. This means that not only does this reduce your remaining balance, but it also means that you will not have to pay any interest on that month’s payment.
The Savings — $47,000
By making a single extra payment of $1,199 annually and applying this to your loan principal, you can save as much as $47,000 from your interest payments and reduce the life of your loan by 5 years.
2. Create Bi-Weekly Payments
Another good way to begin shaving off dollars from your loan will be to make a bi-weekly payment plan. This involves placing half of your regular mortgage payment in a savings account every other Friday, or on payday. Each month you will make a payment to your mortgage from this account.
By the end of the year, you would have made 26-biweekly payments or 13 full payments. This leaves an extra payment to be paid to the principal. Most people will manage these accounts personally, but some companies will do this for you through escrow services and they will manage payments as well.
Savings — $47,000
Same as making an extra annual payment (see above).
3. Cut your PMI
Many people will be required to pay for mortgage insurance, this is most often because they have made an initial down payment of less than 20%. If you are in this mess, you can ask that your lender cancel the mortgage insurance as soon as the mortgage balance drops below 80% of the home’s value. This can happen if you have paid a certain amount of the principal or if the value of your home suddenly increases. You may need to have your home reappraised, but this can potentially shave hundreds of dollars off your monthly payments.
Savings — $130 per month
If you have only placed 5% of the home value in your initial payment and pay a PMI of about 0.78%, you can save as much as $130 a month over your mortgage’s life.
4. Fight Your Property Assessment
Property taxes can account for many thousands of dollars each year. If you believe that the value of your home has decreased over the last year and this has not been calculated in your tax assessment, you can petition your assessor to fight the assessment. Lowering the tax assessment will greatly decrease your yearly tax payments.
Savings — Varies.
This depends on the initial and subsequent assessments. But this can potentially save you hundreds to thousands of dollars each year.
5. Recast Your Mortgage
Some lenders will be willing to restart or reset your mortgage payment plan if you have been making large regular payments toward your principal. Typically, when you put money toward your balance, the monthly payments stay the same but the length of your mortgage plan is reduced. When you reset the payment plan, the payments are reduced over the extent of the loan term.
Savings — $120 per month
Putting a full $20,000 into the loan will reset the payments to about $1,079, this saves $120 each month.
6. Loan Modification
If you are late on making payments and have been hit by financial hardship, you may be eligible for modifying the terms of the payment plan —such as the rate, principal balance, or terms— to make your payments easier to reach. The idea of this is to allow the borrower to remain in their home and continue making payments. Not everyone will be eligible for this type of payment plan, but if you are you will be able to save plenty on your regular payments. you can check if you will be eligible for a modified payment plan by checking at the Making Home Affordable website.
Savings — Varies
This can be used to reduce the interest by 2%, extend the term of your loan to 40 years, or reduce the overall principal.
7. Refinance Your Mortgage
The most common way that borrowers will save a month on their mortgage payments is by refinancing their mortgage. Reducing your rate can help you lower monthly payments and save on interest payments. But there are some costs associated with this plan so it is important to do the math and make sure you will come out on top after the refinance.
Zillow Mortgage Marketplace allows borrowers to search for lenders offering the lowest rates possible. On this site, borrowers can compare rates and loan programs, and reviews. Then they can calculate their costs and decide if refinancing will save them cash in the long run. The good news is that loan rates are lower than they have ever been before and if you haven’t refinanced yet, there is no better time to do this.
Savings — $126 per month
With a reduction of 5% in your interest rate, your monthly payments will be reduced to $1,079 and this can save you $126 each month. If your refinance costs you $5,000 this will be recovered in 40 months.