Repaying your mortgage can seem a little daunting, but there are plenty of ways to lighten the load. And we’ve compiled this handy little guide to help you on your way with lowering mortgage repayments.
Refinance your mortgage to a lower rate
Refinancing your mortgage in order to take advantage of lower interest rates is one way to start lowering your monthly mortgage payments. To qualify for a refinance you’ll need adequate home equity, in addition to meeting a couple of other requirements. Equity is equal to the market value of your home minus what you still owe on the mortgage. It is also important to keep in mind that you’ll need to be prepared to pay refinance closing costs.
In general, refinancing is worth it if you can lower your rate by 1 percentage point. However, it is also possible to significantly lower your monthly payment with a 0.5 to 0.75 point decrease. This does of course depend on how much the refinance itself will cost you and when you’ll reach the break-even point on those costs.
Change your mortgage to a longer term
Another popular reason for refinancing, is to gain more time to repay your mortgage. For example, if you’ve made payments on a 30-year loan for a few years, you could refinance the remainder back out to 30 years. This would most likely result in a lower monthly payment amount than you are currently paying.
However, be aware that refinancing into another 30-year mortgage means you’ll pile on additional interest charges. These will be especially prevalent if you’ve been making monthly payments for a significant amount of time. So, in order to make the best decision, weigh the pros and cons of this option carefully to be sure that it’s the best way to reduce your monthly mortgage payments. You can also talk to your mortgage broker for advice.
See if you can take a mortgage holiday
Taking a mortgage holiday allows you to pause your monthly mortgage payments for a temporary period. The length of time you will be able to pause them for will depend on your lender. This means you will have a short amount of time to get back on your feet, without having to worry about repaying your mortgage. It is important to note that in most cases, interest will continue to be charged and added to your loan.
Modify your mortgage loan
If your mortgage payment is no longer affordable due to a severe financial hardship, a loan modification may be an option. A loan modification is when a lender restructures your loan in some way to lower the monthly payment.
Yet, remember that you don’t have to be behind on mortgage payments to request a loan modification from your lender. In fact, if you’re facing an imminent reduction in income, for example, losing a job or going into retirement, it’s a good idea to reach out to your lender and discuss a potential loan modification in advance. That means when the time does come, you’re already sorted.
There are plenty of ways to help reduce your monthly mortgage payments, to help lighten the load in tricky financial times. Make sure you chat with your lender and mortgage advisor before taking any drastic steps, and to ensure you get the best deal possible.