Second guessing your ability to make your estimated monthly mortgage payment? You may be able to reduce it with these options. Talk to your loan officer as soon as possible to find out if your lender can help with a lower mortgage payment.
A Longer Loan Term
You can reduce your monthly payment by extending your loan term. This will drop your monthly amount due, but be aware that you’ll also be adding years before you can pay off your home. Your equity will increase much more slowly, and you’ll end up paying tens of thousands more in interest.
You can “buy down” your interest rate and lower your monthly payment by paying an extra lump sum of money up front.
A rate buydown involves buying discount points to lower your interest rate for the life of your loan. Typically, a point costs around 1% of the total loan amount, and in return you get a .25% rate decrease.
For example, suppose you are getting a 20-year loan of $220,000 with a 4.5% interest rate. Your down payment is $20,000. Your monthly mortgage payment is $1,265, and you pay a total of $303,672 by the end of the loan term.
If you can come up with an additional $8,000 to buy four discount points, you can lower your interest rate a full point. Your monthly mortgage payment is $1,160, and you pay a total of $278,381 by the end of the loan term. Your mortgage is $105 less per month, but the real advantage is the $25,000 you save over the loan term.
Buydowns of this sort only make sense if you plan to keep the mortgage for some years, until you reach the breakeven point. If you plan to refinance or sell after only a few years, you’ll lose money overall.
If you’re hoping to be in a better financial situation in the near future, you can pay a smaller lump sum and get a temporary buydown. A temporary buydown gives you a lower interest rate for the first few years of your mortgage, before reverting to the original agreed-upon rate.
A Larger Down Payment
Alternately, you could put an additional $8,000 towards your down payment, but then your monthly mortgage payment would be $1,215, and you’d pay $291,525 over the life of the loan (still a savings, but only half what you’d save by getting a lower interest rate with a buydown!)
Lender Paid Private Mortgage Insurance (PMI
In exchange for a slightly higher interest rate, you may be able to get your lender to pay a one-time upfront mortgage insurance premium to the PMI Company. This one-time payment eliminates the need for monthly mortgage insurance.
The extra interest you pay will be much less monthly than paying the PMI yourself would have been, but again, you’ll pay more over the life of your mortgage due to the increased interest rate.
Carefully consider all of your possible ways for lowering your monthly payment before making a decision. Your loan officer can help you understand all of the options available to you.
Your Sammamish Mortgage Loan Officer Can Help You Start the Preapproval Process Today!
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Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.