How To Lower Your Mortgage Payments
Housing is typically the largest expense in a household budget. Most Americans dedicate a third to forty percent of their income to pay their mortgage. Financial planners recommend trying to keep the number closer to twenty-five percent, though this can be challenging if your household income is less than $50,000 per year.
Since housing is the largest expense in your budget, it’s also the expense with the most potential: you can save thousands of dollars a year by reducing your housing expenses.
How To Lower Your Monthly Mortgage Payment
If you are having problems affording your monthly mortgage payment, you may feel stuck. After all, this is a 30 year commitment, right? Wrong. Mortgage payments are comprised of four components: principle, interest, taxes and insurance. Unless you have a big pile of cash, you can’t do much about the principle, but you can work to reduce the interest, taxes and insurance portion of your bill. Here’s how.
- Refinance Your Mortgage: you will save money on your monthly payments if you are able to refinance your mortgage at a lower interest rate or longer repayment term, or both. Understand that if you do a cash-out refinance and tap into your home equity, you may end up paying more than you do now in monthly payments. Generally speaking, it is worth it to refinance your home if you can lower your mortgage interest rate by one percent or more. Potential savings: Average $1,800-$6,000 per year (depending on balance, rate and term)
- Reduce Your Homeowner’s Insurance Cost: When homeowner’s insurance is wrapped into the monthly mortgage payment, people tend to let it renew automatically. Over a short number of years, the premium can grow significantly. To keep the premium down, compare quotes annually and see if your carrier will match competitors. If they won’t switch.
- Insurance Discount Programs: Make sure you are taking advantage of all eligible discount programs offered by your insurance company. You might be able to achieve a rate reduction by bundling your auto insurance and home insurance with the same company. Potential savings: 10-30 percent of your premium ($100-$400 per year)
- Lower Your Property Taxes: If you think your property is being taxed at a higher rate than similar homes in your area, consider challenging your property taxes. Information on how to challenge your property taxes should be available through your town or city tax assessor’s department. Potential savings: $500-$2,000 per year depending on tax rates in your area
- Generate Income With Your Home: Consider taking in a renter or roommate for additional revenue. Besides helping you out with your mortgage payments, a renter may also split utility and other bills with you. Potential savings: $3,000 – $5,000 per year.
Resources To Reduce Housing Costs
You may qualify for state, local or lender-administered hardship programs that can help you reduce your housing costs. The United States Department of Housing and Urban Development (HUD) administers rental assistance programs that include the Section 8 Program, public and subsidized housing options. HUD also helps homeowners avoid foreclosure. For more information check out the following websites: