How to Lower your Mortgage Payment

Mortgage payments often represent a hefty proportion of monthly income, which may become an increasing burden on homeowners. Many experience the switch from a fixed rate to an adjustable rate as an initial offer expires, with the adjustment in payment stretching the monthly budget too far.

Other homeowners simply wish to reduce the mortgage payment to free up additional cash flow or to take advantage of a lower interest rate. The worst case scenario is when the mortgage payment simply becomes unaffordable and homeowners run the risk of defaulting on the mortgage.

Those wanting to lower their mortgage payment have several options to choose from, though should consider the disadvantages involved.

1. Extending the term of the loan offers an immediate way to lower the mortgage payment but will cost more in the long run due to increased interest charges. Some lenders may consider increasing the mortgage term without the necessity of refinancing, as the longer the term the more the lender ultimately makes from the borrower.

2. Borrowers can change the type of mortgage by opting to move to an interest only vehicle. This will lower the mortgage payment, as only interest on the loan will be paid. However the downside of this is that the capital does not reduce; thus homeowners cannot build equity, and an investment ought to run alongside the mortgage to cover the loan further down the line.

3. If only a temporary reduction is needed to cope with a sudden cash flow crisis, then borrowers should approach the mortgage lender to discuss a loan modification. Lenders may well be amenable to a temporary payment holiday or temporary reduced payments, without the expense of refinancing. This is the best option for those who only require a short-term solution, confident that their financial situation is set to improve.

4. Refinancing a mortgage is the most typical way to reduce monthly payments, particularly for those who are able to take advantage of lower interest rates. It is an expensive option due to the fees charged, but borrowers can calculate at what point they will break even and reap the benefits. Mortgage payments can be immediately lowered through refinancing, and those who can pay the fees upfront rather than adding them to the term of the mortgage will benefit most.

5. Another option to lower mortgage payments is to increase one’s credit score and then approach the lender to see if a move to a lower interest rate is possible. Even if the lender is not open to this suggestion, an improved credit score will help in obtaining a lower rate if refinancing is used as an option.

6. Borrowers who are totally overstretched with their mortgage payments and see no end in sight should consider selling the property and either downsizing or renting. With tighter lender criteria in place, refinancing is not always an option. It is better to attempt to sell the home rather than risk foreclosure. If there is equity within the property there is more chance of preserving it and coming out with funds intact if a property can be sold. A more affordable home with lower mortgage payments may be the most prudent long-term course.

These are the optimum ways to lower mortgage payments. Each individual’s circumstances will vary; thus not every option will suit every borrower. Whichever course is chosen can always be reversed at some point in the future; thus it is wise to pay attention to any penalty clauses that apply before signing the agreement.