Most of us keep a fairly close eye on our household budgets, and in times of rising costs, every extra cent matters. While you may think your monthly house payment is locked in stone and unchangeable, that’s not always the case. Even if you have a fixed-rate mortgage, there are aspects of your payment that can fluctuate over time, such as the amount you pay for property taxes and homeowners insurance. In addition, there are some costs that could be removed once you have enough equity built up, like private mortgage insurance (PMI). Of course, variables such as the interest rate, term and loan amount also affect how much you pay each month, and there may be ways to lower these expenses through a refinance or modification of your loan.
That’s why it might be worth doing some legwork to see if you can shave a bit off your monthly mortgage payment. You could find yourself saving several hundred dollars each month, depending on which of these strategies works for your situation.
- Shop for homeowners insurance. If it’s been a while since you reviewed your homeowners insurance policy, now may be a good time to confirm you have the right coverage and see if there are any savings to be found by shopping around. Since home values have increased significantly in recent years, you’ll want to make sure your policy is still covering you for the right amount. And with lots of competition in the insurance market, you can likely find comparable (or better!) coverage at a lower rate, reducing your monthly payments over time.
- Ask about removing PMI. If you had less than 20% as a down payment when you initially bought your home, you may still be paying private mortgage insurance, an insurance premium that’s commonly added to home loans for borrowers with less than 80% loan-to-value (LTV). The longer you’re in your home, the more equity you gain, which can help improve your LTV to the point where you may qualify to get rid of PMI. If that’s the case and you’ve had your mortgage for at least two years, contact your loan servicer in writing to request the removal of PMI from your home loan. Even though there may be costs associated with getting a home valuation or appraisal, it could save you up to a couple hundred dollars each month, depending on how much PMI you’re currently paying.
- Appeal your assessed value. In many places, home values have gone up significantly in the past few years, and that can affect your property taxes if your local municipality raises its assessment of your home. If your tax bill has increased significantly and seems out of line with reality, you may want to challenge it by filing an appeal with the assessor’s office. If you are successful and get it amended quickly enough, you’ll potentially keep your monthly mortgage payment the same and hopefully prevent it from going up significantly in the future.
- Ask about having your loan recast. A mortgage recast, also called a re-amortization or loan modification, allows you to make a significant, one-time payment towards reducing the amount owed on your home loan in return for a lower monthly payment. A recast is different from a refinance in that it retains your original loan, which means your interest rate and term won’t change. However, your payment goes down because of the lower loan balance. Not every mortgage will qualify, and there may be fees associated with a recast. However, this could be a great option if you have a low rate already and recently came into some cash, perhaps from an inheritance or the sale of your previous home (if you purchased a new home before selling the old one).
- Refinance out of an ARM to a fixed rate loan. If you currently have an adjustable rate mortgage (ARM), you may experience a payment increase once the fixed rate period is over. Depending on the details of your loan, this could cause your monthly payment to fluctuate annually. When rates go up, your payment typically follows. Because of their initial lower rate, ARMs work really well for borrowers in a number of different circumstances. However, if you are nearing the end of the fixed rate period of your ARM and you plan to stay in your home, it’s worth considering a refinance into a fixed-rate mortgage. This will lock in your rate for the life of your loan, providing more stability and peace of mind for the long term.
- Refinance to a lower rate and/or longer term. There are several reasons you might consider using a refinance as a way to lower your monthly payment. A primary reason is getting a better interest rate. This will not only reduce your payment, but it can also save you thousands in interest over the life of the loan. Another advantage of a refinance is the option to extend or reset the repayment terms. Since you’ve likely been building equity since you first acquired your home, you’ll have a lower principal balance. When you refinance, you’ll spread that smaller balance over a longer period of time, shrinking your payment and saving you money each month.
A note about escrow accounts
If you pay your property taxes and homeowners insurance into an escrow account held by your mortgage servicer, it can take a while for any changes to be reflected in your payment. If Solarity holds your loan, you can ask us to do a review of your escrow amount based on new information such as a change in your homeowners insurance. However, if your property tax amount changes, you’ll likely have to wait until after the next tax due date to see a difference in your monthly payment.
Saving money whenever possible is a great strategy, no matter where you are in your financial journey. And at Solarity, we love helping make our members’ lives better. If your home loan is serviced by Solarity, contact us to explore which of these potential money saving options might be a good fit for your situation. Our team of experts can walk you through the pros and cons and help you make the best decision to save you money in the long run.
Solarity offers home loans for all types of borrowers, from first-time homebuyers to those who have owned a number of homes.* Financing options include $0-down home loans, bridge loans, cash-out refinances, traditional 30-year fixed mortgages and loans for rental, vacation or commercial properties. Plus, Solarity will retain the servicing of your loan for its duration so you never have to experience the hassle of changing where you send your payment.
*All loans are subject to credit and property approval. Not all applicants will qualify.