By David Pilley on July 26, 2010
.jpg.aspx?width=75&height=75) At some point in your house-owning life, paying off the mortgage might get difficult. Whether the interest rate has grown too high or you’ve had to sacrifice some other things to make the monthly payment or you’ve possibly lost your job and are looking for another, you need some help. You need to refinance. Refinancing can be beneficial to you by changing a rate to make the payment easier and preventing foreclosure. You should consider changing either the interest rate or the term of the mortgage (or even both, if possible).
One way to lower your monthly mortgage payment is to extend the term. For example, if you currently have a $100,000 mortgage for 15 years (180 months) and your interest rate is 6%, you are paying roughly $844 a month, and you will pay about $52,000 in interest over the 15-year term. If you extend the term, you will make smaller monthly payments. So, if you extend your 15-year term to 20 years (240 months), you will be paying about $716.50 a month. While you will be paying less in your monthly payments, you will be paying more in interest (about $72,000). Furthermore, if you have noisy or curmudgeonly neighbors, you will have to put up with them a bit longer than originally expected.
If you don’t want to extend the term of your mortgage, you can try to lower the interest rate at which you pay. If you have a fixed rate mortgage, this means you can’t change the interest rate. Six percent will always be six percent. To save some money, you can switch to an adjustable rate mortgage if interest rates are going down. The interest rate of an adjustable rate mortgage is determined by market indices and is riskier than a fixed rate mortgage. Therefore, if interest rates are increasing, you will want to stick with your fixed rate mortgage.
You could possibly refinance with an interest-only mortgage. In this situation, you will pay only the interest, while the principal balance remains unchanged. (You are not obligated to make mortgage payments, but you certainly have the option to do so, if you can.) Typically, this type of a loan lasts five or ten years, so once it expires you will go back to paying both the monthly mortgage payment and interest. This type of loan is suggested only if you expect your financial situation to greatly improve in the future.
Finally, you could decide to downsize. Purchase a different home with a lower price, and you could save some money. If you are going to get a new mortgage with a new home, remember to make at least a 20% down payment. If you can do this, you will not have to pay Private Mortgage Insurance, which would be just another of the plethora of numbers to remember. These are some of the ways you can lower your monthly mortgage payment.
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