6 Ways to Lower Your Monthly Payments

Whether you are buying your first home in West Palm Beach, refinancing, or buying a second home, you want to secure a reasonable monthly payment.

The more you have to pay each month, the less you have available to pay for home maintenance, repairs and upgrades.

Remember to talk with your lender to get their professional opinion on what works best for your individual situation.

Here are six practical ways to lower your monthly payment.

1. Shop Around

You already know that the price of homes could vary quite widely depending on the neighborhood you select. This standard also applies to property taxes, homeowner's association (HOA) fees and the loan itself.

The Consumer Finance Protection Bureau notes that 47 percent of borrowers only research one lender or broker when getting a mortgage loan, and a surprising 77 percent only apply to one lender. You do face a few fees for each application, but it is usually in your best interest to get rates from more than one lender. You could get a lower interest rate for the same loan.

As you shop for homes, consider variations in HOA fees and property taxes, as well. HOA fees depend on the neighborhood and can be very high or comparatively low. Property taxes are set by the state, but also by the county and city. Determine how much you will be expected to pay for these, and add it to your expected monthly payment.

2. Borrow Less Money

When people have a growing family or a growing need for space, they may be tempted to borrow as much as they can in the largest house possible. However, the fact that you could do this does not necessarily mean that you should. When you apply and receive mortgage pre-approval, the lender will tell you the maximum you will be approved to borrow.

You should probably view this limit as an absolute maximum, not a target. Depending on your region within Jupiter homes for sale, this number may be more than enough to pay for a home that meets your needs.

The numbers on a smaller loan could make a huge difference in your monthly payment. For example, a $225,000 home with a down payment of 10 percent has an estimated monthly payment of $898. A $200,000 with the same percentage down payment drops the monthly payment by $100 a month. In short, making a larger down payment, or buying a less-expensive house, could possibly save you thousands of dollars over the life of the loan.

3. Buy Discount Points

If you have extra money you can invest up-front, you might consider buying discount points to lower your interest rate. A discount point is a percentage of the amount of the loan that you pay to the lender in advance in exchange for a decrease in the loan's interest rate. Each point that you pay represents one percent of the loan.

Paying discount points does not lower the amount of the loan, but they are often deductible on your taxes. The drop in interest rates varies based on the lender's specifications, but the standard is usually one quarter of one percent. For example, if you have an initial interest rate of 4.25 percent and you pay one discount point, you may receive an interest rate of 4 percent for the loan.

4. Consider Alternatives to Monthly Private Mortgage Insurance

There are many components of your monthly mortgage payment that relate to aspects other than paying off principal and interest.

Private mortgage insurance (PMI) is typically one of the easier ones to change. PMI is usually added to loans where the borrower has less than a 20 percent stake in the home's equity.

With these loans, you are generally expected to pay PMI at least until the loan-to-value ratio is 80 percent or less. You have a few alternatives to paying PMI that you might choose, including:

• lender-paid mortgage insurance (LPMI)
• a second mortgage to cover the remainder of the 20 percent
• making a larger down payment
• paying down principal faster

Lender-paid mortgage insurance is often cheaper than PMI, but it lasts the entire duration of the loan. A second mortgage may allow you to bypass PMI, but you should remember that the second mortgage is secured by your home and must also be paid on time.

Once you have paid enough on the principal to have a 20 percent stake in the home's equity, you may ask your lender to eliminate your PMI. However, if you have a loan guaranteed by the Federal Housing Administration, you may be expected to make a certain number of PMI payments before you can eliminate it.

5. Improve Your Loan-to-Value

Paying down the principal on your loan decreases your loan-to-value, making you a more attractive borrower to your lender. The greater the value of your Jupiter Island real estate compared to what you owe, the more options you typically have in changing your monthly payment or the terms of your loan. There are a few ways you can increase your principal payments, including:

• putting bonuses or lump sum payments toward your mortgage
• changing your payment to a biweekly system, with a full month's extra payment each year
• making slightly larger monthly payments each month

You can also take steps to increase the value of your home. The property should rise in value over time due to natural appreciation. If you remodel your home wisely, by adding a new bedroom or bathroom, you may be able to dramatically increase the home's value. Talk to your lender about obtaining a new assessment of your LTV, which may allow you to quit paying PMI, or put you in a better position to refinance.

6. Refinance to a Better Rate

Refinancing a mortgage is not always appropriate for everyone, but a lot of homeowners can benefit. If you are paying much higher interest rates than the current average, you could save thousands by locking in a lower interest rate. Shop around for rates from various lenders. Be sure to include the closing costs in your determination, to confirm that the closing costs do not negate the advantages of refinancing.

If you have owned your home for a few years and accrued plenty of equity, you may be able to stop paying PMI or LPMI. A $180,000 loan that drops from 5 percent to 4 percent will save you about $106 a month over the life of the loan.

Since most people have a mortgage payment for 30 years when buying a new home, it makes sense to try to keep it down to a manageable sum. With these six tips, you can minimize your monthly mortgage expenses, leaving more money available for your other obligations.