Homebuyers: Here’s How to Make Your Monthly Mortgage Payment Lower

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For most homeowners, the monthly mortgage payment is the largest line item in their monthly budget. Thus, it makes sense that you’d want to lower the amount you have to pay each month. The question is, how?

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While there are plenty of different methods for lowering your mortgage payment, there are four major levers that you can pull. Let’s explore each of them in further detail: 

  1.     Buy a Less Expensive Property

Let’s start with the most obvious factor: home price. The easiest way to reduce your monthly mortgage payment is to buy a less expensive property, which directly lowers the amount you’re forced to borrow. 

As a reminder, you don’t have to borrow up to the amount that your lender approves you for. Just because you’re approved for a $300k loan, doesn’t mean you have to use it all. You can borrow just $200k if you want! There’s something to be said for living below your means. 

  1.     Make a Larger Down Payment

The second key is to make a larger down payment. Every dollar you put down in cash is one less dollar that you have to borrow with interest. Putting down an extra $10k could save you $15k to $17k over the life of the loan.

At the very least, you should try to make a 20 percent down payment. This allows you to avoid paying private mortgage insurance (PMI), which will cost you roughly one percent of the loan amount per year in premium payments.

Not sure how to save up 20 percent? It all starts with a good budget and an intentional plan for cutting expenses so that you can stash away more cash. Patience is another key. While you might be mentally prepared to buy a house right now, consider whether you’re financially equipped to do so. If you don’t have the funds to float a 20 percent down payment, it’s a good idea to patiently wait until you do.

  1.     Get the Best Possible Rate

Few factors influence a mortgage payment quite like the interest rate. When all other factors are equal, an elevated interest rate can force you to pay hundreds of dollars extra each month – just for the right to borrow the same amount of money. Therefore, you should proactively look for ways to lower your rate to the absolute bare minimum amount. Strategies and tips include:

  •     Improve your credit. There are a lot of different factors that come into play when determining the interest rate you qualify for, but your credit score is a very significant metric. If you’re planning to buy a house in six months or a year from now, use these next few months to boost your score. Those with excellent credit are more likely to qualify for the best rates on the market. 
  •     Shop around. You should always shop around with multiple lenders and mortgage providers. You’ll find that they offer varying rates and loan options. You might even see significant variances, depending on how competitive the market is and what type of loan you’re in the market for.
  •     Go with an ARM. If you know that you’ll only be in this property for five years or less, there’s nothing stopping you from going after an adjustable rate mortgage (ARM). This will give you access to a much lower rate – though it can balloon after the five-year introduction period. 
  1.     Extend the Length of the Loan

The longer the loan terms, the lower the monthly payment. If you’ve been looking at 15- and 20-year mortgages, consider taking on a 30-year loan. This will lower your monthly note (and you always have the option of paying it off like a 15-year mortgage).

As a side note, it’s important to remember that your monthly payment isn’t the only relevant factor. While it’s definitely the element that you feel the most in the short-term, it’s ultimately the interest over the life of the loan that’s significant in the long-term. Keep this in mind and weigh different loan options accordingly.

What’s Your Game Plan?

There are ways to lower your monthly mortgage payment. Ultimately, it’s up to you. Are you willing to exhibit the discipline required to buy a less expensive property, make a larger down payment, get a better rate, and/or extend the length of the loan? If you do these four things, you may be surprised by how low your monthly payment can truly drop.