Learning how to lower mortgage payment requirements can be a challenge. Yet, if you pay your mortgage payment every month, you may be wondering why it is so high. Is there anything you can do to reduce what you have to pay? In many situations, there is. You may be able to obtain a new loan to help reduce what you are paying on your existing loan. And, options are available for many people, even those who think they may not qualify.
What Does It Mean to Refinance a Loan?
If you want to learn how to lower mortgage payment requirements every month, you generally need to obtain a new loan. Refinancing your loan allows you to do this. You obtain a new loan with new terms to replace your existing one. The benefits vary based on the type of loan you obtain.
Refinancing is the process of obtaining a new loan, but if you have a goal to obtain a lower mortgage payment, there are a few key things to look for in any loan. There are a few key things to take into consideration.
Find a Lower Interest Rate Loan
The best way to get a lower mortgage payment is simply to obtain a new loan with lower interest rates than you have right now. Most often, you will want to consider rates that are at least one percent lower than what you are paying now – but you may also benefit in situations where there is less of a difference. Keep in mind, though, that a new loan may include closing costs. This can limit some of the benefits of refinancing in the long term.
A lower interest rate equates to a lower mortgage payment. There is less cost to you for obtaining the loan.
Secure a New Term Length
Another way to reduce your monthly payment is to obtain a new loan with a longer term. The term is the length of time you will pay on the loan. For example, if you obtained a 30-year loan, and you’ve been paying on it for the last 10 years, you could refinance it into another 30-year loan. When you do, this extends the amount of time you have to repay your debt. As a result, your monthly payment drops significantly.
It is also important to recognize this will increase the cost of the loan to you in the long term. A longer term means there’s more time for interest to build on the loan.
Worried You May Not Qualify?
Some people may not qualify for a traditional loan refinance. For example, some lenders require a specific credit score. However, the most common reason to be turned down for refinancing has to do with equity. If your home does not have enough equity, the lender may not approve the refinancing of the loan. Equity builds as you pay down your loan. It is the amount of value on your home without a mortgage applied to it.
What can you do here? To lower house payment requirements when you have little equity, consider a government-backed program. For example, the Home Affordable Refinance Program allows those with a Fannie Mae or Freddie Mac-based loan to obtain a new loan with better terms even if they have little to no equity. This means you may qualify for a lower interest rate and better terms. This program is available until the end of 2018.
Just Getting Started?
If you are interested in purchasing a home, but you want lower payments from the start, options exist to help you. To secure a lower monthly payment on a new loan, consider these tips:
- Purchase points. Points are upfront payments you make on the loan to reduce your interest rate. Work with your lender to determine the value of paying points for your loan.
- Make a larger down payment. Your interest rate will remain the same, but when you make a larger down payment, you reduce the amount of borrowed funds. This reduces how much principal can be impacted by interest.
When you want to lower house payment requirements prior to the loan starting, also consider ways to keep costs low. For example, make half of your monthly payment required every two weeks. This takes away some of the burden of making one large payment. But, it also reduces your principal owed faster – you will be making an extra payment a year. Overall, this saves you thousands of dollars over the lifetime of the loan.
In most situations, refinancing through a government-backed program or through a traditional home loan refinance can be the best way to secure a lower monthly mortgage payment. And, it does not have to be hard to obtain this type of loan. However, you should work closely with your lender to find the best terms available to you.