When you’re experiencing financial setbacks, you look for ways to reduce your expenses. One of the biggest bites of your income probably goes to your monthly mortgage payments. Naturally, a high mortgage payment can leave you with little left to pay the rest of your expenses.
Luckily, there are several ways to reduce your monthly mortgage in California. The most common way is to refinance, but if you can’t or don’t want to do that, there are a couple of more options to help reduce your monthly mortgage. Keep reading to learn more.
Advantages of a Lower Monthly Mortgage
Once you lower your monthly mortgage payment in California, you will have the additional cash flow you can use for other things. Saving on your mortgage can allow you to pay off other interest rate loans and credit cards faster or save money for home repairs or unexpected expenses. Moreover, you may increase savings for education or retirement.
How to Lower Your Monthly Mortgage with a Refinance?
Refinancing your mortgage can have massive financial benefits. That’s especially true if you do it strategically. There are several refinance programs, and using the suitable one can help increase your savings.
Refinance to a Reduced Interest Rate
The main reason homeowners refinance in California is to reduce their mortgage interest rate. Apart from lowering your monthly mortgage payments, that can also save you thousands of dollars over the life of the loan.
Let’s say you have a 30-year loan with a $200,000 balance at a 3.75% interest rate. If you refinance at a 2.75% interest rate, you’ll reduce your monthly payment by approximately $100 and save about $39,600 in total interest amounts over the life of that loan.
If your finances have improved since you bought the house in California or you’ve had your mortgage for over two years, you could likely qualify for a lower rate and considerable monthly savings.
Refinance to a Fixed-Rate Mortgage
Adjustable-rate mortgage (ARM) offers a fixed interest rate for the first couple of years of your loan with a fluctuating rate after that. If you have such a mortgage, your rate might go down, but it can also increase, resulting in significantly higher payments than you can afford with ease.
If you refinance to a fixed-rate mortgage loan, you won’t have to worry about the uncertainty of changeable rates and will possibly save more money over the life of your loan. Although refinancing from an ARM to a fixed-rate mortgage may not amass substantial monthly savings, it will give you financial security because you’ll know your rate won’t increase in the future.
Prolong Your Loan Term
Another alternative is to refinance and prolong the amount of time for paying off your loan. Doing that will lower your monthly payment and deliver extra monthly cash flow. This method can work even if your interest rate is already low. However, you could end up paying more in total interest. Nevertheless, if your primary concern is lowering monthly mortgage payments, that may not be an issue.
Consider Using a Streamline Refinance
You can also use a streamlined refinance. With this refinancing, the lender isn’t required to re-check your credit, income, and employment, meaning the loan can close faster and likely skip a lot of paperwork.
In addition, with a streamlined refinance, you can bypass the home appraisal, meaning you can refinance with little to no home equity accrued. You may even get a lower rate than you would with other kinds of refinancing.
With a streamlined refinance, the lender often can’t add closing costs to the loan balance, while the monthly payment and interest rate has to be low enough to make it convenient for the borrower. Ultimately, this refinance enables the borrower to get a lower rate and payment for little effort and cost.
Lower Your Mortgage Payment Without Refinancing
Refinancing is the main way to lower your monthly mortgage payments in California, but not the only alternative. Some homeowners don’t want to refinance because of closing costs, while others might not qualify for it. Whatever the case, there are several other options worth exploring, and you can find them below.
If you qualify for a loan modification in California, it can extend your loan’s term or lower your interest rate. Sometimes loan services grant those options to help borrowers bypass foreclosure and prevent losing their house because of the events that may or may not have been under their control. You’ll likely have to provide supporting documentation, such as evidence of income, to be qualified.
Recast Your Mortgage
Recasting your mortgage requires applying a large lump-sum payment to your loan principal and maintaining the same payoff date. That changes the re-amortization schedule of your loan and lowers principal and interest payment each month without having to refinance. That makes recasting your mortgage a very low-cost and efficient alternative. This option may be ideal for you if you recently received a large amount of money.
Get Rid of Your Private Mortgage Insurance
If you have at least 20% equity in your house, you can get rid of your private mortgage insurance (PMI) by asking your lender to drop your PMI. The lender may send an appraiser to confirm how much equity you have in your house. If it can’t be removed, you’ll pay less each month on your mortgage payment.
If you’re still closing your home, you can also pay your PMI upfront unless you put the 20% down. That way you’ll take care of your PMI by paying a one-time fee instead of paying extra on your mortgage each year.
Lower Your Property Taxes
Many states will allow you to freeze your property taxes, or you may qualify for a tax-relief program if you’re a senior, veteran, or disabled. Check with the California taxation department to see what they offer regarding property tax relief.
Pause Your Loan with Forbearance
Finally, you may be able to temporarily pause your loan through forbearance if you’ve undergone a temporary hardship and loss of income. For example, the shutdowns due to the pandemic have driven many borrowers to pause their loans. Although a forbearance will allow you to postpone payments on your mortgage, it won’t allow you to bypass the payments entirely.
Once the forbearance period ends, you’ll have to repay any missed or reduced payments. Or, you’ll have to work with your lender on the most suitable solution for repayment, based on your financial situation. Typically, forbearance isn’t an optimal solution because it can impact your credit scores and prevent you from refinancing.
Lower Your Monthly Mortgage
After reading this article, you know the main ways to lower your monthly mortgage in California. The main way to reduce your mortgage payments is by refinancing, and there are several ways to do that.
Apart from refinancing, you can try qualifying for a loan modification or recasting your mortgage. Moreover, you may be able to get rid of your PMI or lower your property taxes. Finally, you can try pausing your loan with forbearance, but keep in mind that this usually isn’t the best option.
Either way, don’t hesitate to contact professionals who can help you achieve your monthly mortgage payment goals.