There’s no doubt that purchasing a home is an exciting and often stressful life event. But the feeling of satisfaction you get from unpacking all your boxes in a brand-new home is hard to top. While all homeowners strive to pay off their mortgages as quickly as possible for a chance to experience the financial freedom that brings, it’s not always a reality. In the past year, COVID-19 has caused a lot of extra stress for homeowners, often making it difficult for people to make mortgage payments on time amidst layoffs, added medical expenses and general uncertainty. If you’ve found yourself in this boat, just know that you’re not alone and you’re definitely not without options. If you’re concerned about your current financial situation and fear that you may not be able to continue making your monthly mortgage payments on time, take the opportunity to speak with a professional and review all your options:
Refinance Your Mortgage
Refinancing can help ensure a lower monthly payment and interest rate, but this option will only be viable if you have good credit. If you’re considering refinancing as an option, make sure you shop around to get the best rate possible.
Another option is an interest-only mortgage. This is a temporary way to lower your mortgage payments, providing some short-term relief while you plan for an increase in the future. Interest-only (I/O) mortgages occur in two stages: the first phase, where you only pay the interest on your mortgage and the second phase, where you pay off the actual principal balance plus interest.
Extend Payment Term
One simple way to lower your monthly mortgage payment is to extend your payment term (also known as recasting or re-amortizing). When you add more time to your payment term, your monthly payments decrease because you have more time to pay the loan back in full. It’s important to note that while you will definitely pay more in interest with this option, it’s a solid solution for homeowners who need an immediate cash flow solution to stay afloat. You also won’t have to worry about refinancing your mortgage to access this option as most lenders offer it for a fee of about $250.
It may be worth exploring debt consolidation if you owe money for multiple loans, credit cards, etc. You have the option to take a first or second debt consolidation mortgage loan that will help you lower your monthly payments in general which could ease the financial tension you’re experiencing. Be sure to investigate this option further with a professional to determine if it’s a good fit for your needs and if it will actually help lower your payments in the long run.
Look For Better Home Insurance Rates
It’s important to remember that your monthly mortgage payment includes more than just your principal and interest – it also includes taxes and insurance. If you’re feeling financial pressure, you may want to start by looking for better home insurance rates before you dive into any more complicated options that have long-term implications like refinancing or extending the term of your mortgage etc.
If the options above don’t seem viable or ideal, you may want to consider moving into a smaller, more affordable house to reduce your liability. While this is obviously a last resort, it’s important to understand all your options, especially if you’re worried about foreclosure.
Get Rid Of Private Mortgage Insurance (PMI)
If you put down less than 20% when you bought your home, chances are you’re still paying for private mortgage insurance on top of your regular mortgage payment. In the long run this can add tens of thousands of dollars to your loan. Once you’ve paid enough of your mortgage to gain at least 20% equity in your home, you can speak with your lender about dropping the PMI. While this may require a visit from an appraiser, it’ll lower your monthly payments if/when it’s removed so it’s worth taking the necessary steps to investigate.
Conduct Home Tax Reassessment
Property taxes could be making up a significant portion of your monthly payments if your property has an escrow. Property taxes are based on how much your home/land are worth and sometimes, homes in certain areas are overvalued which results in higher taxes. It may be worth looking into a reassessment to make sure your property has been accurately valued as an adjustment could save you some extra cash every month.
No matter what your situation, there’s always more than one way to lower your monthly mortgage payments if you find yourself in a not-so-ideal financial situation. Before you make any decisions, it’s important to determine whether you’re in need of a short-term or a long-term solution as that will help you filter your options and weigh the pros and cons as you move forward.
Need help figuring out how to move forward? Use one of our financial calculators to help you eliminate the guesswork and maximize your opportunities.