If you want to reduce your monthly mortgage payment, there are actually a couple things you can do. The first, is you can refinance your mortgage. Whether or not you should refinance depends on two factors: the age of your loan and the difference between your current and potential new interest rate. Home loans amortize, which means you pay mostly interest towards the beginning of the loan term and mostly principal towards the end of the term. As a result, interest rate is most important towards the start of a term. The interest rate makes less of an impact towards the end of the term, when your payments are predominantly principal. The newer the mortgage, the stronger the argument that you should consider refinancing.
Another thing you can do is re-evaluate your private mortgage insurance. If you bought your home with a down payment that’s less than 20%, you might be paying PMI, which is adding a decent chunk to your mortgage each year. The good news is that you won’t be stuck paying PMI forever. First, repay enough of the mortgage that you’ve gained 20% equity in the house. Then contact your lender to inquire about the process of dropping your PMI. Lenders won’t drop the PMI automatically, you’ll have to request it. Many lenders will send an appraiser to determine the home value before the lender verifies that you own a 20 percent equity stake.
Another option, is to extend your mortgage into a conventional 30-year term in order to cut your monthly payment. However, your interest rate will rise. But, you can still choose to make additional payments on the mortgage, as if you were paying a 15-to-20-year loan. These extra payments will help you satisfy the loan more quickly, without obligating you to make massive payments. See: 12 Ways to Reduce Your Mortgage Payment.
Lastly, another alternative, yet uncommon way to lower your monthly home payment, and that is to fight the tax assessment. A conventional mortgage payment consists of your principal payment, your interest payment, and your monthly payment that the lender puts towards your property taxes and homeowners insurance. If you default on your property tax bill, the county can put a lien on your house. The governments lien will take priority over the lenders lien.
As a result, the lender collects your property taxes each month in order to protect its interest in your home. This payment sits in escrow until the yearly property tax bill is due. Sometimes assessments are also too high if the area has been re-zoned, the new zoning has caused home prices to decline, and the declined prices aren’t reflected in the assessment. Homeowners can protest the assessment by filing a protest with the county or requesting a hearing with the state Board of Equalization. To learn more about the third option, read What Is Private Mortgage Insurance? (PMI).