There are several ways to reduce your mortgage payment, some easier than others…
- Get rid of your PMI or Private Mortgage insurance! If you are like many people when you purchased your first property you did not put down the 20% that everyone talks about. There are many loan products out there that allow you to finance a property with only 10% down, or maybe 5% or 2%! But most of those products require you to maintain PMI. PMI can be expensive! There is good news though! If you purchased almost anytime more than a year or so ago, you probably have a lot more equity than when you started. If you can prove to your lender that you have the 20% equity in your property, you can stop paying that PMI and reduce your monthly payment. Contact your lender to figure out exactly how they want you to go about that but it will probably require an appraisal which can cost $500 – 700, but given how much you can save each month that is a wonderful investment!
- Refinance – This is obvious and something everyone knows about, but many people don’t pay attention to rates and have no idea that they are paying more in interest per month than they need to. I’d suggest visiting your bank’s website and looking at their current rates section, or going to bankrate.com and reviewing rates available there every 3 to 6 months, set an alarm for yourself. A couple things to keep in mind that may mean your can reduce your rate even if rates haven’t gone down…
- If you had a high loan to value ratio when you took out the loan (put down less than 20%), and your property has appreciated you may be considered less risky to lenders now and so receive a lower rate.
- If last time you refinanced you cashed out, that usually involves a higher rate, and so if you refinance again without cashing out you may receive a lower rate.
- If you happen to move into a property you had previously been renting as an investment property, by making it a primary residence your rate may go down.
- Paydown – This one may be the hardest one of all. But every once in a while people get a windfall, or they are disciplined in their ability to pay more than what is needed on their monthly payments for long periods of time. If you do have excess cash and want a safe place to invest it, paying down your mortgage is one good option. By paying down your mortgage this will not automatically reduce your payment but it is possible you could contact your financial institution and see if they could modify the loan to reduce the payment. This would save you from having to do a full refinance to realize the reduced payment. It’s rare but I have heard of it happening. Worse case you will still be saving the interest expense, and all your future payments will be paying down the principle even faster.
Good luck out there, your mortgage payment is probably your biggest single expense per month, make sure you’re always thinking about how you might be able to reduce it.