How to Lower Your Monthly Mortgage Payment

Your monthly mortgage payment is most likely your largest financial obligation. Here are a few strategies to lower your mortgage payment. 

Refinance

Refinancing is one of the most popular methods for lowering a monthly mortgage payment. This involves taking out a new mortgage loan and paying off your old one. This strategy will help you get a lower mortgage payment in one of two ways. 

The first way that it could help is if you have been paying on your existing mortgage for a number of years and have paid down the amount that you owe. Imagine, for example, that you took out a 30-year mortgage at 6.5 percent for $200,000 when you bought your house. That figure is what your monthly mortgage payment was based on. This gives you a monthly payment of approximately $1555, depending on the taxes and insurance in your area. After several years of paying down your mortgage, the balance on your loan is now $150,000. If you took out another mortgage for $150,000 and paid off your original mortgage, the monthly payments would now be based on a balance of $150,000 instead of $200,000. This would have the effect of lowering your mortgage payment to $1166 per month. 

The second way that this strategy could potentially help you is if you took advantage of a lower interest rate. Let's say that you have the same house as in the first example, a house with a mortgage at 6.5 percent. Your payment is still $1555. Now you find out that the interest rate in the market is down to 4 percent. You refinance into a new mortgage with that rate, and your monthly payment is now $1246. This can result in quite a monthly savings just by getting a lower interest rate on your mortgage. 

Interest-Only Mortgage

Another way that you could lower your monthly payment is by taking out an interest-only mortgage. An interest-only mortgage, as the name suggests, requires you to pay only the interest on the loan each month. Therefore, you will not be paying any of the principal on a monthly basis. For example, on a fixed mortgage payment of $1000, let's say that $750 of that is interest each month and $250 is principal. With an interest-only mortgage, the monthly payment would require you to pay only $750. The $250 just stays on the loan balance until the end of the loan. 

You are free to make a larger payment whenever you wish and pay down some of the balance. However, you are not required to do so until the end of the loan. At that time, you will be required to make one large balloon payment for the entire principal balance. This type of mortgage is very risky, but it will serve the purpose of lowering your monthly mortgage payment. 

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