There’s an easy way to lower your monthly mortgage payment, just refinance your loan.
But, if you have bad credit, refinancing your mortgage may not be an option.
So how do you lower your mortgage payment without refinancing?
Well you have to get creative.
In this article were going to explore all the ways you can lower your mortgage loan payment if you already have a mortgage. And some ways to get a lower mortgage payment in the first place for those who are in the process of getting a loan.
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1. Re-Amortize Your Mortgage
Re-amortizing or recasting is a great way to lower your monthly payment without refinancing. This process involves extending your mortgage term.
You can extend it back to a 30 year fixed-rate mortgage and since your loan balance is smaller than it was originally your payment will be lower.
You may be able to extend your mortgage loan to a 40 year term as well, this would lower your mortgage payment significantly. Many lenders offer this service for a small fee and the paperwork is minimal.
You will end up paying more interest over the life of the loan. But, your monthly payment will be lower which can really help those who a struggling financially.
In the future if you get to a point where you can afford a higher payment you can simply pay a little extra each month, or make bi-weekly payments and pay off your mortgage early.
2. Have your Mortgage Company Re-Calculate your Escrow Payment
The amount you pay towards your escrow account which go towards your homeowners insurance and property taxes is often recalculated year to year.
If they find out your property taxes or homeowners insurance are less than what you’re putting into escrow each month they will adjust your escrow payment which will lower your monthly payment.
3. Appeal Your Home’s Assessed Value with the County
Property taxes are high, the average is 1%. In some states, such as Texas they are really high, over 2% of the property’s assessed value every year.
If you think you’re paying too much property tax and your homes value should be lower than it is you can appeal the tax assessment with the county.
Get your county tax assessment of your home and verify they have everything listed correctly. Do they have the number of bedrooms and bathrooms right.
The square footage, how many acres you actually have, are all of these correct? If not you can contact your local tax assessor and let them know they have incorrect facts listed in their report.
4. Rent Out A Room in Your Home
This isn’t the ideal scenario for most people. But when things are really tight, you can rent out a room in your home.
If you have a house and a spare bedroom you could could bring in an extra $500 a month or more to help reduce your mortgage payment. Get a room cleaned out and check Craigslist to research how much you should charge.
It doesn’t have to be a permanent situation, type up a 1 year lease and at the end of it you can decide to renew, or kick them out.
5. Get a Lower Mortgage Rate
This is the obvious answer to lowering your payment. However, if you have bad credit you won’t qualify for most types of refinance programs.
In order to refinance lenders typically want to see at least a 640 FICO score. There are Government refinance programs available to help you get a lower rate without having perfect credit.
FHA Streamline Refinance
If you have an FHA loan then you may qualify for the FHA streamline refinance program. These are great because they don’t require great credit, in fact some lenders don’t perform a credit check at all. You could even be unemployed because they won’t verify your income at all.
There is a 210 day waiting period from the time you closed your mortgage to be eligible. A streamline refinance could lower your monthly payment by hundreds of dollars by getting a lower mortgage rate on a new 30 year fixed-rate mortgage loan.
VA and USDA Streamline Refinance
VA and USDA mortgages are Government backed home loans that qualify for the streamline refinance program.
If you currently have one of these loans you may qualify for a streamline refi to reduce your monthly mortgage payments by getting a lower rate.
HARP, home equity loans and a cash-out refinance are all options to reduce your mortgage rate. You should speak to a loan officer to evaluate your options to refinance your mortgage.
6. Loan Modification Programs: Home Affordable Modification Program (HAMP)
If you’re facing a serious financial hardship you may qualify for a loan modification. You need to be either current and not able to pay your next payment, or no more than 60 days past due.
A loan modification helps borrowers who are unable to continue making their mortgage payments because of a financial hardship, such as a loss of income or medical condition. If this applies to you then you should contact your lender to see if they can work with you to lower your mortgage payment.
6. Get Rid of PMI
Mortgage insurance protects the lender in the event a borrower defaults on a mortgage loan. Private mortgage Insurance (PMI) is required on all mortgage loans when you put less than 20% down.
PMI ranges from 0.50 on conventional mortgages up to 0.85% for FHA. If you have paid your mortgage balance below an 80% loan-to-value ratio (LTV) you may be able to drop PMI.
Make an extra payment or contact your lender about bi-weekly mortgage payments which will help you pay down your principle balance faster.
If you have an FHA loan PMI is required for the life of the loan in some cases. Even if you have paid your FHA mortgage balance below a 80% LTV ratio you cannot drop mortgage insurance. If you want a lower mortgage payment, get rid of your PMI.
7. Shop for a Cheaper Homeowners Insurance Policy
Homeowners insurance is typically collected monthly and put into an escrow account. Just like when you get a mortgage, you need to shop around for the best rates with your homeowners insurance.
Find out what you’re paying now and shop around for a cheaper policy to help reduce your payment. Quote Wizard is a website that allows you get quotes from several insurance companies in minutes.
8. Work on Increasing Your Credit Score
Your credit rating is directly tied to the interest rate you receive on a mortgage. If you have poor credit not only will you get a high rate, you may not even be eligible to refinance in the first place.
If you improve your credit score you can apply to refinance and get a lower rate.
Believe it or not you can increase your credit score in a relatively short period of time by doing these 5 things.
- Pay down card balances
- Become and authorized user
- Remove your collection accounts and/or late payments
Pay down your credit card balances: Credit utilization is the ratio of your credit card balances compared to the credit limit. For example: If you have a card limit of $10,000 and you have a $5,000 balance, your credit utilization ratio is 50%.
This is very high and will have a significantly negative impact on your FICO score. It’s best to keep your utilization ratio below 15%. So if you’re carrying high balances, pay them off and wait a few weeks for it to updated on your credit report. When it’s reported your scores will increase.
Get added as an authorized user: An authorized user is a secondary account holder who has authorization to use the account.
If you know anybody with a credit card account that has been established for a long period of time with positive payment history, ask them to add you as an authorized user on that account. When you’re added, the entire account history will be reported on to your credit history.
If the account has been opened for a while this will help increase your overall credit rating. The great news, you don’t have to have a card, so the risk is minimal for the friend or family member adding you onto the account.
Get your collections removed: Paying off a collection account will not improve your score, but removing it will. There are a couple techniques you can use to remove collections for your credit report.
Including, disputing the account with the Credit Bureau, or contacting the collection agency to negotiate a pay for delete.
Late payments can plummet your credit score. I’ve seen peoples credit scores drop by up to 100 points because of a couple late payments. However, you can remove late payments removed from your credit report.
The best thing to do is contact the creditor first and dispute the late payment with them. If that doesn’t work dispute it with the credit bureaus. Here are all the steps you need to take to remove collection from your credit report.
9. Have 20% to Put Down
There are lots of great mortgage programs out there that don’t require 20% down. FHA loans only require 3.5 down. The Conventional 97 program only requires 3% down. This makes them cheaper than a 20% down mortgage right?
Not exactly. Mortgage insurance premiums can cost up to 1 percent of the loan amount each year. And an additional 1.75% of the loan amount for up-front mortgage insurance.
Ideally, if you want the lowest mortgage payment possible you should opt for saving up for a 20% down payment. This will save you thousands on PMI.
10. Get an Adjustable Rate or 40-year fixed-rate Mortgage
Fixed-rate mortgages are the most popular type of loan term. A lot of this has to do with the 2008 housing crisis where adjustable-rate mortgages (ARM) rates spiked and people couldn’t afford their monthly payments.
Adjustable-Rate mortgages have an initial 5 year term with a very low interest rate that increases annually starting in year five. The low rate will give you the lowest monthly payment possible. Before your rate increases you can refinance into a fixed-rate or another adjustable-rate loan.
You can also look into an interest-only mortgage loan which will have an even lower payment. Obviously you cannot do an interest only loan forever, but it could help you for a couple years to save up some money.
Lenders now offer 40 year fixed-rate mortgages. While interest rates will be a little higher for a 40 year loan the monthly payment will be quite a bit lower.
Check Rates: Get Current Fixed-Rate and ARM Rate Quotes
The Bottom Line…
Lowering your mortgage payment without refinancing takes some work on your part. But there are several ways you can achieve this. Re-amortizing your mortgage and checking to make sure you have the lowest homeowners insurance can both help.
Mortgage insurance is one of the fees that greatly increasing your monthly payment.If your loans LTV ratio is under 80% consider refinancing into a conventional loan to remove PMI.
There are also several refinance programs for people with no equity, are upside down, or have bad credit, like FHA streamline loans.
Do you have another way you can save money on your mortgage? Please send them to us.