For most people, the monthly mortgage payment is the largest in their budget. Ideally, it should comprise no more than thirty-three percent of the breadwinners’ take-home pay; twenty-five percent is better.
If your budget is tight, filled with extra, unexpected medical bills, or if your income has dropped off, you may want to ponder some ways of reducing your monthly mortgage. Here are a few ideas that may prove worthwhile:
- If your payment is so high that you are having trouble meeting the monthly budget, it may be time to downsize. Find a cheaper home that will require a smaller bite of your income and sell your present, more expensive home. Whatever your family size, you should be able to find a more affordable home that need not be smaller, but may require a little fixing up or perhaps is located in the suburbs or countryside.
- Buy and live in a multi-unit rental property. Depending on market conditions, you may be able to live in one side of the duplex and rent out the other half at a rental fee that will cover part of your monthly payment as well. Eventually you can pay off the building or sell it to move into a single-family home if you prefer. Living on the premises of your rental property means that you can monitor tenants’ treatment of the unit and be available for emergency repairs or calling a technician.
- Refinance your home loan for a cheaper rate. Wait for favorable market conditions and then shop for a loan provider that will beat your current interest rate. Make sure you plan to live in the home for some time to come so that any payment of a loan processing fee, points, or other costs will be redeemed in the long run. You will not only have a smaller monthly payment, but perhaps be able to pay off the home sooner, too.
- Add occasional chunks of cash to your principal balance to pay it down and eliminate mortgage insurance. While this sounds contradictory to the idea of having a smaller mortgage payment, by reducing the amount owed on the principal, you may be able to have the mortgage insurance payment removed from the overall payment, reducing the amount you will be required to pay each month.
- When refinancing, look for the best deal. Not only will a lower interest rate help to reduce your monthly payment, but the overall loan application package can affect your new monthly mortgage payment. Some banks or financial institutions waive the application fee (typically between $100 and $300) while others limit or eliminate the number the points paid on the loan (often $1,000 or more each). Wrapping these fees, and others, into your overall loan will impact the amount of the monthly payment. Shop for the lowest rates and smallest fees.
Since most people get a thirty-year home loan, it pays to find ways to make the monthly payment as small as possible. Consider strategies like these to reduce yours to a more affordable rate.