Do You Need Lower Home Mortgage Payments?
It is uncomplicated to save money on your home mortgage. Whether you want to save money over the entire term of the home mortgage or drop your monthly payments, mortgages offer several ways to make your life easier.
The first question is, do you want a lower monthly payment or a lower total payment? These goals are opposed. Because interest compounds, making a lower total payment means making a higher monthly payment, and making a lower monthly payment increases the amount of money you will eventually pay to your lender.
If you want a lower total payment, the solution is easy: Pay a little more each month. The extra money goes directly to your principal, so in the next month you accrue less interest and pay off more principal, which drops the following months interest even more. The difference is small at first, but within a few years it accumulates until you are paying noticeably less interest than you were. Adding just $100 a month to the mortgage payments for a $200,000 home mortgage with a 30 year term can strip nine years off the duration of the loan and save you over $72,000 in interest payments. If adding money every month is out of your budget, add it when you find that you have a little extra left in the bank, or make a single extra large payment once a year. The results will be dramatic.
You can pay more each month without asking permission of your home mortgage lender. However, if you want to drop your monthly payment, you will need your lenders help to refinance. When you refinance, your goal is a lower interest rate (at least two points lower than your current rate, and ideally much lower), and probably a longer term. Be cautious about lengthening the term of your home mortgage. Because of interest compounding, adding time to the term will not decrease the monthly payment proportionately. If you refinance to a $100,000 home mortgage with a 15 year term at a 5% interest rate, your monthly payment will be $788. Doubling the term more than doubles the amount of interest you will pay over the term of the loan, but drops your monthly payments by only $252, or less than a third. If your family is going through a financial rough spot, then that $252 may create enough wiggle room in your budget to see you through, and may even make it possible for you to keep your house. However, once you are less strapped, it makes good financial sense to pay a little extra each month to decrease the total sum you will owe on your mortgage.
As you can see, saving money on your home mortgage is easy, but requires tradeoffs. If you want to save money in the long term, you must spend more money in the present. If you need to save money in the present, you will pay more in the long term. Choose which one is best for your financial situation, and keep in mind the tradeoffs you make as you manage your home mortgage. See these also Home loan - Home equity loan - Refinance rates -
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