With the recent fluctuations in the real estate market, the mortgage industry has seen dramatic changes. The good news is that there are many opportunities currently available that allow borrowers to reduce their mortgage payments. Refinancing an existing mortgage or securing a new loan is a viable option for homeowners who need to lessen their monthly spending. There are several methods to follow to get started finding a program that reduces mortgage payments.
Mortgage Refinance Options with a New Lender
A good way to start the process of reducing mortgage payments is by reviewing the current market conditions. By researching interest rates and understanding expected trends, a borrower has a better chance of finding the ideal mortgage. Start by reviewing a few facts:
1. What is the current interest rate for various loan types such as fixed or adjustable? Are they at least 2 -3% lower than the existing mortgage? Will the mortgage remain affordable if a variable rate rises or is there a danger of losing the property?
2. How do interest rates differ depending on the term, for example, a 25 year loan vs. a 15 year loan? Consider the equity in the home and whether it makes sense to refinance now or wait until the real estate market in a particular region improves.
3. What are the fees involved and how do they relate to the current loan payments? For instance, a loan that costs $3,000 and reduces the monthly payment by $300 will take 10 months to realize a savings. If the mortgage will be for a long term, the fees are usually worth the cost of securing a new loan.
Refinancing with the Same Lender
Sometimes all it takes is a simple phone call to get started on a refinance program with the same lender. If the borrower has a good credit rating and favorable payment history, it often behooves the lender to review a refinance program with them rather than loose the loan entirely. Ask the current lender a few basic questions:
- What programs are currently available that may lower my monthly payments? Think about home equity, expected length of time remaining in the property and any change in financial status. Interest only loans may have a lower interest rate but the principle continues to remain unpaid.
- What are the fees involved in securing a new loan and is it possible to waive the fees?
- Are there any penalties for paying off the loan before the end of the term?
Other Ways to Reduce Mortgage Payments
Another alternative that reduces mortgage payments in the long run but still costs the same is to make an additional payment on the principle amount. The money allocated to pay down the principle goes directly to that amount and reduces the overall cost of the loan. The loan term is shortened, less interest is paid and the average monthly payment is actually reduced. This option works well for borrowers who have the extra cash on hand to dedicate toward their mortgage.
Some lenders offer a bi-weekly payment plan where an amount is paid every two weeks rather than once a month. In these programs, the principle is reduced each year leaving the interest paid per year to be gradually less. In the life of the loan, for example a 30 year fixed, the loan is actually repaid in 25 years and costs 25% less. Homeowners who do not intend to stay in their home for the full term will still benefit by reducing the principle and will gain equity and pay less interest over time.