One way to lower your mortgage payment is to lower your interest rate. Your mortgage payment is based on the interest rate you agreed to pay when you got your loan from the bank. Commonly, mortgage loans are based on a fixed interest rate that will remain unchanged over the term of the loan – usually 15 or 30 years. According to Mortgage-x.com, Fixed Rate Mortgages have ranged from as high as 18% in the early 1980’s to near or below 5% today. These are the lowest mortgage rates in over 50 years. According to the National Bureau of Economic Research, the average rate on a 30 year loan in 1956, when Dwight Eisenhower was president, was 5.15%! Adjustable rate mortgages (ARMs), which gained popularity in the 1980’s, usually offer much lower introductory rates (sometimes as much as 2 percentage points below a fixed rate mortgage); but then in 2, 3, or 5 years they reset to a new, prevailing market rate where they stay for the balance of the loan. Because these loans start with very low starter or “teaser” rates, they often reset to a much higher interest rate and therefore, a much higher payment. This makes Adjustable Rate Mortgages a riskier bet over the long term; still, adjustable rate mortgages can be a good choice for borrowers who plan to be in a house for only a short time, or who expect to refinance before the rates rise.

 

 

To a large degree, the size of your loan payment is a direct result of your interest rate; so if you want to lower your payment, you need to look for ways to lower the interest. There are a variety of web sites that offer consumers interest rate comparisons including Bankrate.com, HSH.com, and Mortgage-x.com. Visit many web sites to learn what loan rates are out there. If your research determines there are lower rates available, you may be able to lower your monthly payment by refinancing your loan through another lender or by contacting your current lender and asking to modify your existing loan.

 

You may also be able to lower your payment by changing the term of your loan. Thirty years ago, mortgage loans were primarily 30 year loans. Today, mortgage companies commonly offer 15 and 30 year terms; but many now offer 20 and 40 year loans as well. The longer the term of your loan, the longer you can take to pay the money back, and the lower your payment will be. While 30 year loans have been the gold standard for fixed rate mortgages for a very long time, 15 year loans have gained popularity as baby boomers have purchased homes with an eye toward paying off their mortgage before retirement. An added bonus – the 15 year loan costs the borrower far less in interest over the life of the loan. As an example, at 5%, a borrower will pay more than $153,000 in interest over 30 years on a $165,000 loan. That same borrower will pay $69,866 in interest over the life of a 15 year loan. But these numbers don’t make the decision on a 15 or 30 year loan a no-brainer. Think before you choose a loan term. If you take out a 15 year loan, you will be obligated to make a higher monthly payment, although for a shorter time. If you hit a financial hardship, you could be in trouble. With a longer term loan, say – 20, 30, or 40 years, and with no pre-payment penalty, you can reduce your monthly payment and still have the option to pay down your loan principal whenever you have extra cash to send the bank. You can achieve the same cost savings as you would with the 15 year loan but retain the flexibility of making lower monthly payments if you need to.

 

If making your loan payment has become a hardship because your income is down, your loan adjusted to a higher rate, or other circumstances make paying your mortgage difficult, you may find relief in extending the length of your loan to give you a lower monthly payment. Talk to your lender. This option may be available to you through a loan modification if you are already behind with your payments. Or, if you are current on your mortgage, but find making your payment increasingly difficult, consider refinancing with any lender to a longer term loan.

 

If you are like most people, your lender or loan servicer includes your property tax and home-owner’s insurance premium in with your monthly mortgage payment. They set this money aside in an escrow account where it accumulates until they pay your annual taxes and home-owner’s insurance for you. Sometimes you can lower your monthly payment by proactively reviewing your taxes and insurance premiums.

 

 

Property taxes are usually assessed by the town, city or county you live in. The cost of services such as garbage collection, parks and recreation, and street maintenance are also often allocated to property owners. The method for determining how much to bill each property owner is based to some extent on the value of the property you own. If you believe your property value is lower than the assigned tax value, you should contact your tax collector to have the market value reviewed. Reevaluation of your property value can potentially result in a reduction in your taxes and a reduced monthly payment to your bank.

 

 

Insurance is another area that can boost your monthly payment to the bank. There are many factors that affect your property insurance premium including the area where you live; potential hazards such as earthquakes, hurricanes and tornadoes; the building structure, how close you are to water in case of fire, the materials your home is made of and much more. Understanding what goes into your insurance premium can be very complicated. There are, however, things you can do to keep your premiums in check.

 

 

If you have the option, you can try to avoid living in areas that have extreme perils, such as hurricanes, that boost premiums. Wherever you live, try to work with your insurance company to upgrade your home to meet any standards for safety the company requires. Often you can meet the requirements to lower your premium without incurring major costs. You should also review your policy at least annually to be sure you are paying for the coverage you expect. Any home replacement value included in your policy should be in line with current construction costs. You can ask your insurance company to help you make that assessment to keep your property safe and keep your cost down.

 

 

Your credit history will also affect your ability to refinance or modify your loan to a lower interest rate or a longer term. This report is a record of how responsibly you have repaid your loans or other bills, and banks rely heavily on credit history to make loan decisions. Very often, when you are under financial stress, your credit history will not be perfect. You should make potential lenders aware of periods of job loss, illness or other circumstance that may have affected your credit. Often lenders are more willing to work with you when there are valid reasons for credit blemishes. You should also order and review your free credit report every year. You can order a copy from annualcreditreport.com. If you see errors on the report, act quickly to contact the credit bureau(s) and vender associated with the inaccuracy. You should contact them in writing to let them know you do not agree and ask for information that backs up their claim. The credit bureaus should help guide you through the procedure to clear your credit record of errors. Keeping your credit history current and accurate may help you maintain a higher credit score which could translate into a better interest rate or loan term and reduce your monthly payment.

 

In order to refinance or modify your loan, you will have to demonstrate that you can afford the new payment. Your ability to pay is dependent upon how much income you have coming in every month as compared to how much you pay out every month to cover monthly expenses. These expenses might include your mortgage, car, and school loan payments; credit card bills, household utilities, and child care expenses. Generally, lenders like to see your mortgage debt at no more than 30% of your income and your other debts at a manageable level that will not keep you from paying your new mortgage. While the bank has an interest in your ability to repay the loan, it is ultimately your responsibility to make sure that you can pay your bills, including your new mortgage, before you refinance or accept a loan modification.

 

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