by John F Mann

Created on: January 06, 2011

Lowering your mortgage payment is one way to reduce overall spending. However, you owe it to yourself to spend time investigating the various methods available, to ensure the greatest benefit and avoid wasted time.

The following basic methods are available to reduce mortgage payments;

1) - Obtain lower interest rate, generally by refinancing the mortgage loan

2) - Obtain modification of loan payments, via negotiation with the lender  

3) - Obtain reduction of property taxes

You can also eliminate current mortgage payments by selling the house, if feasible, and moving to a new residence with lower payments.

Refinancing

Refinancing the mortgage may be the most direct way to lower payments. However, this method is typically available only if you; (1) Are not way behind on payments, and (2) Can handle the up-front "closing" costs, which may include "points" charged by the lender.

You will not obtain any overall net benefit unless you remain in the house long enough so that the reduced (after tax) payments will offset closing costs. If closing costs are added to the loan amount, you will pay interest on the closing costs.

If you itemize deductions on your Federal tax return, the mortgage interest deduction will be reduced. Net benefit (cost reduction) is less than the difference in mortgage payments.

Amount of payment reduction depends on the reduction of interest rate. Using a mortgage calculator program, found on several web sites, you can easily determine the change in payments.  Lending Tree provides one such calculator (Mortgage Calculator). For figuring the change in monthly loan payment (only), input zero for property taxes and insurance. 

For a 30-year loan, with reduction of interest rate from 6.50 to 5.00 percent , monthly payment is reduced by $95.24 for each $100,000 of loan amount. However, for 25% Federal tax bracket, net after-tax benefit is $71.43 per month. For closing costs that are 1-percent of the loan amount, ($1,000  for this example), it will take 14 months to break even.

Loan Modification

As housing prices fell dramatically after 2007, many homeowners who bought after 2003 are faced with the fact that they now owe more (on the mortgage) than the current market value of the property. This unfortunate situation results in major problems with refinancing and even with trying to sell the house.

Loan modification has therefore become much more

• 1
• 2
• 3
• 4
• Next Page >>