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How To Lower Your Mortgage Payment

For most people, housing is their biggest monthly expense. And if your mortgage occupies too much space in your budget, you might be looking for ways to lower your payments. Luckily, solutions exist — and some of them are rather simple and cost-effective.

Below, CNBC Select explains five possible ways to pay less for your mortgage and what you need to take advantage of them.

How to reduce your mortgage payment

Get rid of mortgage insurance

Refinance your mortgage

Speaking of refinancing, it can also be a way to lower your mortgage payment. Refinancing involves taking out a new mortgage on your property to replace your current loan. Ideally, you can get a lower interest rate and significantly decrease your monthly payment. However, that’s not always the case — and the process itself is often expensive.

Mortgage rates fluctuate based on factors outside of a homeowner’s control, such as inflation, Federal Reserve monetary policy and the housing market conditions, among others. If the average interest rate on refinancing is higher than what you currently pay, this solution isn’t likely to bring you any savings.

Besides, the terms you’ll get depend on your credit history and how much equity you have in your home. For instance, if your credit leaves a lot to be desired and you have less than 20% in equity, the lender might consider you a risky borrower. You may still qualify for refinancing, but the lender won’t be able to give you the best rate.

Finally, remember that refinancing means taking on a new mortgage loan. This means paying closing costs (typically, between 2% and 6% of the loan amount). Needless to say, it can be a significant sum. You’ll have to find the break-even point to determine when refinancing will start saving you more money than you’ve spent on it. You can use a refinance break-even calculator to figure out how many months or years it will take. Ask yourself whether you’re planning to live in your home for that long.

If the conditions are right and you’ve come to the conclusion refinancing is the right choice, make sure to shop around for lenders so you can pick the best terms. CNBC Select recommends Ally Bank if you’re looking to save on lender fees. You can get a custom quote online with no impact on your credit score. Better is another excellent option — you’ll pay no origination fees and can receive up to $3,500 in credits to offset some of the closing costs.

Ally Home

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Fixed-rate, adjustable-rate and jumbo loans available

  • Fixed-rate Terms

  • Adjustable-rate Terms

    5/6 ARM, 7/6 ARM, 10/6 ARM

  • Credit needed

Better.com Mortgage Refinance

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loan, FHA loan and jumbo loan

  • Fixed-rate Terms

  • Adjustable-rate Terms

  • Credit needed

Consider recasting your loan

Shop around for home insurance

Nationwide Homeowners Insurance

  • Cost

    The best way to estimate your costs is to request a quote

  • Maximum coverage

  • App available

  • Policy highlights

    Policy covers home and property damages caused by theft, fire and weather damage. It also covers personal liability, loss of use and unauthorized transactions on your credit card

  • Does not cover

    Water damage, earthquakes, flood insurance, identity theft, high-value items, rebuilding home after loss (these can all be purchased as add-ons for extra coverage)

Before you switch, check with your current insurance company if they charge a cancellation fee for terminating coverage early. If they do, consider whether the savings will offset the fee. Finally, make sure your new policy is in place before the old one ends to avoid a lapse in coverage — which can lead to higher insurance rates.

Ask about a mortgage modification

Consider mortgage forbearance

A mortgage modification permanently adjusts your payments. If you’re only looking for temporary relief, consider forbearance which reduces or even pauses your mortgage payments for a period. Keep in mind that you’ll need to repay all the suspended or late payments once the period is over.

The loan modification process and requirements vary by lender. Most likely, you’ll need to provide information demonstrating your financial situation like documentation about your income and total mortgage payments. After you submit an application, the lender might require that you complete a trial payment plan to prove your ability to make consistent payments. If you succeed and get approved, you’ll receive an offer outlining the terms of the modified loan.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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