One of the best ways to reduce mortgage payments is to do a mortgage refinance as long as the new mortgage interest rate is at least two to three percent lower than the current rate and there is sufficient equity in the house. It's also important to a make sure there is no prepayment penalty on the existing loan. A prepayment penalty is a fee charged by the lender if a mortgage loan is refinanced before the prepayment expires. This fee is usually six months interest, which is quite costly and will increase the payments of a new mortgage refinance. Check your Note for prepayment penalty information or call your lender. Prepayment penalties usually last from one to five years and cost six months interest or 20 percent of the remaining loan balance, whichever is less. To reduce mortgage payments, make sure a new loan will not cost more than the savings.
Refinance into an interest only mortgage loan instead of an amortized loan to reduce mortgage payments. Interest only loans have the lowest mortgage payments because there is no extra money applied toward the principle amount of the loan. Most borrowers can pay extra toward the principle at any time without any fees to reduce the total loan amount as long as the amount does not exceed 20% of the principle during the prepayment period. An interest only loan is an excellent way to reduce mortgage payments, and pay extra toward the principle if your budget permits. Make sure to get an interest only loan where the interest only period lasts at least five years or more unless you are going to be in a position to make higher mortgage payments sooner. The shorter the interest only period, the lower the interest rate during the interest only period, which respectively reduces mortgage payments the most.
If your current mortgage originated on or before January 1, 2009, and your total housing costs including taxes and insurance are more than 31 percent of your total gross monthly income, you may qualify for the government's Making Home Affordable Plan to reduce your mortgage payments. As long as your home is owner occupied, is one to four units, and has a loan amount that does not exceed 105 percent of the value, the Making Home Affordable Plan may help you reduce your mortgage payments. There are other limitations, but many people qualify for loan modification through the Making Home Affordable Plan. Contact your lender to see if you are eligible for this program. By law mortgage companies must comply with this new law. It is not necessary to be behind on your mortgage payments to qualify. For more information see the article, How to Get Help from Obama's Making Homes Affordable Plan, in the resource section below.
To reduce mortgage payments, ask your bank for a loan modification. More and more lenders are more willing to help people with load modifications to reduce the risks and costs of foreclosures. There are different types of loan modifications. Mortgage companies may reduce payments to interest only for a while to lower mortgage payments or add the difference from lower payments to the end of the loan or amortize lower payments over the life of the loan. Some mortgage companies are willing to extend the term of amortized loans to reduce mortgage payments. Be prepared to show financial information such as monthly gross income and expenses. Reduced mortgage payments though loan modification will probably cost more money over the life of the loan.
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