If you’re considering refinancing your mortgage there are a number of reasons for taking out a new home loan.
Some people choose to refinance because of a financial hardship, others want to borrow cash against the equity in their homes; however, the most common reason is to get a lower monthly payment.
Here are several tips to help you get that lower payment and take back control of your paycheck.
How to Get Lower Mortgage Payments
The method you choose to lower your mortgage payment depends on your situation and your financial goals. Here are four of the most common methods used to get a lower monthly payment:
I. Extend the term length of your new home loan.
The easiest way to lower your monthly payment is to take your current mortgage balance and stretch it out over a longer amount of time. Suppose for example that you purchased your $300,000 home at seven percent five years ago and want refinance the balance of $280,000. Your current monthly payment is $1,200; however, refinancing with a 6.5% interest rate over forty years would lower payment to $850…a savings of $350. Keep in mind that by extending the term length of your loan you will be paying more to the lender in the long run for your financing.
II. Choose an Adjustable Rate Mortgage with a lower mortgage rate.
A short term fix for many homeowners is to choose an adjustable rate mortgage. If you expect your income to increase in the near future or plan on selling your home within a few years a hybrid ARM could be a sure fit. Hybrid Adjustable Rate Mortgages have the advantage of a fixed rate period that lasts as long as five years before the lender starts adjusting your mortgage rate. Hybrid Adjustable Rate Mortgages are an excellent way to take advantage of lower adjustable rate loans while protecting yourself from economic uncertainty.
III. Consider Interest Only or Option Adjustable Rate Mortgage Loans
If you’re interested in the lowest possible payment amount option ARMs, while risky, provide the lowest possible minimum payment. The problem with this type of loan is that if you only make the minimum payment amount every month you’re not paying enough to cover all of the interest due that month. The unpaid interest is simply added to your loan balance which results in a mortgage that actually grows over time. This is a bad thing. If you want to limit your risk but need a lower payment than a traditional ARM, consider an interest only loan.
IV. Borrow Against Your Equity to Take Back Your Budget
Cashing out the equity in your home to pay off other bills could be the solution for a budget that is out of control. When you refinance your mortgage and take cash back to pay off other bills you get to deduct the interest paid on this debt from your taxes.
Getting the lowest possible payment when refinancing can only happen if you qualify for the lowest mortgage rate. The mortgage quotes you receive shopping on the Internet and by calling your mortgage broker all include commission-based markup. If you want the lowest possible payment you’ll need to qualify for a wholesale mortgage rate…you can learn more about refinancing wholesale without paying junk fees with our free mortgage video tutorial. Register today while this is still a free offer; you’ll get immediate access to the videos on your PC and free live support to answer any questions you have.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
