How to Reduce Mortgage Repayments
When a homeowner faces financial hardship, one of the first considerations is finding a way to reduce his mortgage payments. Fortunately, there are a number of ways to accomplish that, from getting a new mortgage when interest rates are lower, to asking your lender to modify the existing mortgage to reduce the monthly outlays. You should always be on the lookout for ways to reduce one of the largest monthly payments you make, not just when it's difficult to make mortgage payments.
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Refinance your current mortgage if interest rates are low, particularly if your existing mortgage is at a higher rate. For example, a person's monthly payment on a 30-year $200,000 loan will be reduced by about $125 if the interest rate is one percent lower. However, before you sign on the dotted line, be sure of the costs associated with getting a new mortgage. Many lenders charge "points"--a percentage of the loan--and there will be closing costs. If you don't plan to own the home long enough to absorb those costs, refinancing your mortgage may not be for you.
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Talk with your mortgage lender about lengthening your loan. For instance, if you extend your loan from 15 years to 30 years, you will materially reduce your monthly payments. As an example, let's say you have a 15-year $200,000 mortgage at 6 percent; change it to 30 years and your payment will be reduced by about $500 per month.
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Tell your lender that you are having financial difficulty and that it has become difficult making payments to him. But first, have a plan before you approach him. For example, if he has assessed fees as a result of the payments you've missed, ask that they be waived. Or else, ask him to convert your mortgage to an interest-only loan, which means he will suspend the principle portion of your loan until you financially recover. Most lenders would rather make modifications to an existing loan than allow it to go into default.
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Make an extra payment once each year on your mortgage, and you will reduce it by several years. For example, if you have a 30-year $200,000 mortgage at 6 percent, you will save almost $72,000 during the term of the loan and you will reduce it by about five years. Use this method once you have regained you financial footing.
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References
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