As the cost of living in America continues to surge, it’s vital to grab every cost-cutting opportunity that comes your way. And if there is one area where you can cut expenses, it is your monthly mortgage payment, given that these payments take up a large percentage of your paycheck. It is why 13.4 million Americans are struggling or are behind on their mortgage payments.
Here is a look at the options available to help lower your monthly payments and get back on track.
Buying Down Your Rate with Discount Points
Discount points are prepaid interest that you can pay to lower your mortgage’s interest rate. When buying points, you pay more upfront. However, you will benefit from a lower interest rate because it’s like you will be prepaying the interest to reduce what you pay every month.
One point equals 1% of the loan amount, and each point generally lowers your interest rate by between 0.125% and 0.25%. For example, if you’re taking out a $200,000 mortgage, one point would cost you $2,000.
The number of points you should buy depends on how much lower you want your interest rate to be and how long you plan to stay in your home. This option is best if you plan to stay in your home for a long time.
Increasing Your Down Payment
Your mortgage’s down payment is the lump sum you pay upfront to buy your home before taking out a loan. The higher your down payment is, the lower your monthly payments will be because you’ll need to borrow less money.
A larger down payment also helps you avoid private mortgage insurance (PMI), which is a policy that protects the lender if you default on your loan. If your down payment is less than 20%, most lenders will require you to pay PMI.
The minimum amount you can put down on a home depends on the type of mortgage and the lender. For conventional loans, the minimum down payment is 3%, but you’ll need at least 10% if you want to avoid paying PMI.
FHA loans have a minimum down payment of 3.5%. VA and USDA loans don’t require a down payment, which makes them a good option if you can’t afford a large upfront investment.
Start Saving on Your Monthly Mortgage Payments
Lowering your monthly mortgage payments can free up much-needed cash. You can make owning a home more affordable by evaluating your options and taking advantage of opportunities to lower your payments.