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.

Term of Your 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.

Taxes and Insurance

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.