How to Reduce Your Mortgage Payments
A high mortgage payment can stretch your budget thin and make it difficult to handle the little bumps that inevitably come down the road. That’s why it’s so important to get the lowest mortgage payment possible. Fortunately, there are plenty of things you can do that can dramatically reduce your mortgage payments.
Take a look at our list to see which methods might work for you.
Choose a More Affordable Home
When you’re spending the money on a new home, you don’t want to compromise. However, you still want to be sure you’re getting the best deal for your money. Determining an affordable price can have more to do with recognizing what you need versus what you want. For instance, you can start by comparing price ranges based on the style of home.
Maybe you thought you needed a 2,000 square foot home with four bedrooms, and have only been looking at homes fitting that profile. However, a home listed as a 1,500 square foot home with three bedrooms could easily meet your needs if you finished the basement. This “smaller” home would probably be much more affordable.
Additionally, a home with a low starting price may not include all the features you want – then you find yourself paying for upgrades. A different home with a bit of a higher starting price would be a smarter choice if the features you're looking for already come standard. Get a good sense of your needs versus wants and a good builder will help you find a home to match.
Make a Bigger Down Payment
Once you’ve found the home you want, having a bigger down payment will decrease your monthly payments. If you’re only able to save $100 a month for the down payment, it might not make sense to try to save more because an extra $1,000 is not likely to make a big difference. However, if you always get a $10,000 bonus at the end of the year or can afford to save bigger chunks of money, it might be beneficial to wait until you have a larger down payment.
Pay Attention to Property Taxes
There are other home buying costs to prepare for. Your monthly mortgage payment can include 1/12 of the amount of your annual property taxes, by using the TIPP program. The mortgage company puts this money into an escrow account and pays the bill when it comes due. This portion of your monthly bill can be hundreds or thousands of dollars, depending on where you live. As you look at different neighbourhoods around Winnipeg, be sure to ask about the property tax rates. Choose the neighbourhood with the lowest rates.
Talk to an Insurance Broker
Homeowners’ insurance premiums are also included in the monthly payments, and if you can decrease your insurance costs, you’ll decrease your mortgage payment. An insurance broker can help you look for a plan that has a lower cost. They can also help you find ways to get discounts. For instance, adding a home security system or getting rid of the trampoline can make a big difference.
Improve Your Credit
Your mortgage rate is based on your credit score. Those with poor credit pay higher interest rates, and these higher rates can mean your monthly payment is $100 more than someone with better credit. As you get ready to buy your home, take care to build your credit at the same time. Ask the mortgage broker where you fall. If you’re at the upper end of their range, you might be better off waiting a few months while trying to bump yourself up into that next level.
Buy Down Your Interest Rate
If you can’t get a better interest rate by improving your credit, you may be able to buy your way to a better rate. Mortgage lenders often allow you to buy “points” –usually amounting to one percent of the home’s value – that will decrease your interest rate. Bankrate has a mortgage points calculator to help you see what a difference it can make. This is just an estimate though, and it's always best to talk to a lender before house hunting.
Get Rid of Monthly PMI Payments
Those who have less than 20 percent for a down payment have to pay private mortgage insurance (PMI), and this payment is usually included in the monthly amount. If you want to save money, look for ways to get rid of this payment. Ideally, you can just increase your down payment so it meets that 20 percent limit.
You could also look for a loan that allows you to remove PMI once you pay enough towards the mortgage to have at least 20 percent equity in the home. Finally, you may be able to make a one-time payment of the PMI. This could be a few thousand dollars, but it ends up being less than the total payment if you were to pay it each month.
Choose a Longer Term for the Loan
The longer your loan term, the lower the monthly payment. Some people like to take out 15-year mortgages because they like the idea of fully owning their home after only 15 years. It makes sense if you can afford to do that. However, if you need more affordable payments, you’ll want to take a 25 or 30-year mortgage.
The best mortgage is one that fits well within your budget. By shopping around and using some of our tips, you’ll be able to find the right mortgage for you.
