Why eliminating your PMI could be a viable option
Refinancing to reduce your mortgage is not always ideal. In some cases, it may not even be available to you. There are, however, options out there. Here are seven effective strategies to reduce your mortgage—without refinancing.
Mortgage modification
One effective strategy to reduce your mortgage without refinancing is to request a mortgage modification. Mortgage modification is particularly effective if you cannot afford your monthly mortgage payments and find yourself in danger of falling behind on those payments. In that case, you should contact your lender as soon as you can because you could be eligible for mortgage loan modification.
Mortgage modification is when you change your loan terms without refinancing. This may be your best option if you find yourself in financial peril since many lenders usually work with homeowners in times of need. The government also provides lenders with incentives to partake in medication programs. Each of these factors makes mortgage modification a viable option.
Mortgage recast
If you have access to a lump sum of money to put towards your mortgage, mortgage recasting could be another effective strategy to reduce your mortgage, without refinancing. When you recast your mortgage, your lender essentially lets you make a large payment up front, which does come with a fee, although the recasting fee is typically only a few hundred dollars. Your lender will then recalculate the remainder of your payment schedule, usually over a comparable term. Basically, your monthly bill should drop if you recast your mortgage because you will now have a lower principal.
Drop mortgage insurance
If you have an FHA loan, everything will get slightly more complicated, since FHA mortgage insurance premiums are more difficult to drop. In that case, you will have to put down 10% minimum at closing and then wait 11 years. The only way to drop insurance otherwise is by refinancing into a conventional mortgage, which you can only do when you have at minimum 20% equity.
Split your mortgage payments in half and pay biweekly
If you want to reduce your mortgage without refinancing, you can also split your mortgage payments in half and pay biweekly. While it is more of a long game, splitting your mortgage payments will likely save you money and eventually make your loan term shorter.
For example, you will make 26 biweekly payments throughout the course of a year, working out to 13 full payments. However, you will end up shaving off more than four years from your repayment period if you start biweekly payments when you first arrange your mortgage and continue them throughout the entire term.
Eliminating private mortgage insurance (PMI)
You are likely paying private mortgage insurance, otherwise known as PMI, if you used a conventional loan with under 20% down or if you used a low down payment loan at the time of purchase. Because property values are rising, however, private mortgage insurance likely won’t last forever. This is because increasing property values reduce a home’s loan-to-value, or LTV, ratio, potentially placing you in the position to cancel your PMI immediately.
If you do go down this route, you will first have to contact your lender and request to have your PMI removed, which your lender will either approve or deny. If your request is denied, you can either reduce your LTV to 78% with a lump sum payment, thereby cancelling your PMI; add a value-enhancing feature to your home and have an appraisal; or request a new home appraisal.
Look for cheaper homeowners’ insurance
When looking for cheaper homeowners’ insurance, you can call around to get quotes from various insurers. If you hear a better deal, then switch. You also have the option to remain with your current carrier and reduce your bill. One example is a lender who will give you a discount for bundling two or more of your policies, which would happen if you swapped your car insurance to the same company that you get your home insurance from.
Have your home value assessed
Usually, your property taxes fluctuate yearly based on your home value assessment. If your property taxes go up, your mortgage payment will go up. If your property is assessed incorrectly, you will be forced to pay higher property taxes. However, as a homeowner, you have the option to appeal your property taxes through your local assessor’s office. If you review the assessor’s information and find discrepancies or inaccurate information, you may be able to make the case to appeal your property taxes.
