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If you’re a homeowner you’re familiar with all the costs related to keeping it. The mortgage payments, home insurance, property taxes, repairs and so on.
If you’re reading this on Frugal for Less, it’s likely you’re looking for ways to cut your mortgage payments and I have thirteen different ways to help you do that.
This is usually the firsts one people think of – refinancing your home.
This is a good option if:
- You have a variable rate loan and interest is climbing
- You have a fixed rate loan and interest has dropped considerably
- You need a large influx of cash
For example, “Bob” mortgage started with a variable rate at 6.3% with a monthly payment of $560, after 3 years it climbed to 6.8% and payments jumped to $570 a month. Bob refinanced his home with a fixed rate of 4.9% and a new monthly payment of $550.
Be sure to shop around for the best deal for your needs. Be careful though, each credit inquiry lowers your credit score. This book can help you decide if a home refinance is right for you.
2. Talk to your Current Lender
Because we own a home, we get junk mail and email spam from other lenders for refinancing and deals, but we forget about our current lender. Of course, they’re not going to send you mail – they already have your business.
Go and talk your current lender about refinancing. One advantage of refinancing with your current lender is that they already have all your information on file and the application will go through faster.
Also, ask if there’s anything you could do to lower your payments too. Your lender is usually on top of new trends and real estate laws that they may have ideas to tell you. A little warning though, a mortgage lender’s job and usually a commission, is to sell you products, so do your research on any suggestions he gives you before you proceed.
3. Stop the PMI
Yeah, that title read funny didn’t it? PMI is mortgage insurance and usually happens when you didn’t put enough of a down payment (less than 20%) when you bought your place.
PMI is costing you thousands of dollars on your mortgage loan. If you have at least 20% home equity you can ask your lender to stop the PMI charges. They’ll send out an appraiser to check the current value of your home to verify before dropping this charge and your monthly payments will be lower.
4. Request a New Tax Assessment
Do a free online home appraisal, or call a realtor and get a rough idea of how much your home is worth. Then check your municipal tax bill and see if what their estimate is and if it’s higher than the estimate you were told, then you should request a new tax assessment from your county.
Your monthly payments will lower if the county did find a lower assessed value.
5. Homestead Tax Credit
The homestead tax credit or exemption is where the homeowner is excused a certain dollar amount or percentage of home value from property taxes. They’re called “homestead” exemptions because they apply to primary residences, not rental properties or investment properties. You must live in the home to qualify for the tax break.
For example, your home value is $200,000 and your property tax rate is 1% – your annual bill would be $2,000. But if you applied for a homestead tax credit and are eligible for a $50,000 credit, then your taxable value is now $150,000 and your yearly tax bill is now only $1,500.
Note that only 46 states offer this tax exemption. You get a bigger “cut” if you have a low income, are a senior, or have a disability. Most of these forms are available at your county tax office.
6. Change your Home Insurance
Check how much you are paying on home insurance and either renegotiate your monthly payments or find a lower offer elsewhere.
This will affect how much escrow is taken out of your monthly payment and eventually will be lower once a lower home insurance policy takes effect.
7. Homeowner Insurance Discounts
Ask your home insurance carrier what you can do to your home that will lower the insurance payments.
There are different types of discounts available:
- Bundle your Policies – add coverage for your car, motorcycle and boat to bundle the costs and make everything lower
- New home discount – if your home is less than 10 years old
- Opt for a higher deductible – the more you’re willing to pay out of pocket, the lower your monthly payments
- Pay in Full – If you pay your policy in full every year this can save in two ways – no additional service fees for monthly payments and less taken out of escrow on your mortgage payments
- Home improvements – Some home improvements will give you insurance discounts such as a new roof, upgrades to HVAC and other “safety” issues.
For other ideas on lowering your home insurance can be found in this great informative book.
This is a big decision, but consider moving to a smaller home, a place with a lower cost of living, a county with lower tax assessments, or lower home values.
Selling your big home and moving to a smaller or cheaper home also gives you a large money boost as well.
Here’s an example from my home area on the difference a different county makes:
- The median home value in Tulsa, OK (Tulsa County) is $171,000 or $100 per square foot of home.
- The median home value in Supulpa, OK (Creek County) which is only 15 minutes away from Tulsa, OK is $96,300 or $90 per square foot.
Just for moving out of the big city and 15 minutes away can save you $74,700!
9. Rent out some Space
An easy way to help with your monthly mortgage payment, especially if you’re single or an empty nester is to rent out space in your home.
There are several things you can rent out:
- A spare bedroom for an in-home renter.
- Storage space in your garage
- An extra parking space in your driveway
- Your backyard for campers
- Your car (when you’re not using it)
All of these methods can be looked up online and some of these even have memberships similar to Airbnb for free advertising.
10. Fix your other Debts
Many mortgage experts agree that when people come to them about mortgage issues it turns out that it’s not the mortgage payment that is the problem but all their other debts.
So, before running off and refinancing and selling your home and all the other options, consider looking at all the other bills you are paying.
Work on reducing those debts instead, it’ll be easier to do than the trouble of refinancing and everything else.
Tips on reducing your other debts can be found in these posts:
- How to save $100 a month on groceries
- How to save money on healthcare
- How to stop paying bank fees, investing fees and more
- Money saving hacks to use on a daily basis
You may find that after all this debt reduction and money saving ideas, your monthly mortgage payment doesn’t seem so bad now.
11. A Home Equity Loan
Home equity loans work differently than traditional loans, acting as a line of credit. This means that the bank will approve to borrow up to a certain amount of your home, but your equity in the home stands as collateral for the loan.
This would be great for a needed cash flow, paying off all your other debts or making home improvements to qualify for the insurance discounts, and so on.
If you have extra money left over after your needs are met I suggest you either pay it towards the principal of the equity loan, or your mortgage loan. This lowers the interest rate and length of time for repayment.
One smart idea is to make sure that the home equity loan’s monthly payment is going to be lower than all your debts monthly payments combined. It’s no use getting one and finding out that after all your debts and needs are paid that your new debt is higher than before.
12. Pay off your Mortgage Faster
This should be done if it’s financially feasible for you. This may be best done after all the other options above are done, but this is one way to lower your monthly mortgage payments in the long run.
There are several ways to accomplish this:
- Make bi-weekly payments – You make half of your mortgage payment every two weeks or 26 half-payments – equals 13 full monthly payments each year. That extra payment can knock eight years off a 30-year mortgage.
- Make extra payment every 3 months – You’ll pay your mortgage off 11 years early, and you’ll save more than $65,000 in interest.
- Whenever you have extra cash – Make a payment towards your Principal only. (Income tax return, bonuses, winnings, etc.)
Be sure to check with your mortgage lender if they accept bi-weekly, or even extra payments on your mortgage without any penalties.
13. Mortgage Loan Modification
I left this one for last as this is more for a situation where you’re desperately trying not to go into foreclosure. Go and talk with your current mortgage lender about modifying your loan.
A mortgage loan modification is changing the terms of your loan. This may include extending the years of loan repayment, lowering the interest rate, or forbearing or reducing your principal.
You can still consider this option for reducing your monthly payments if you’re not in a desperate situation. But be sure you do your research and understand clearly what is being affected as this type of loan modification can influence your credit score big time.
For more understanding on how to use the Home Affordable Modification Program is in this book.
Now you have thirteen great ways to lower your monthly mortgage payments. This book can offer you more ideas as well.