Ways to Lower Your Mortgage

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Paying the mortgage is a long term commitment that most U.S. home owners have made a part of their monthly routine. Over the last 4 years, mortgage interest rates have been under 5% and have actually fluctuated between 3.5%-4.5%. According to USA Today, “the nationwide average for a 30-year loan dipped to 3.97%” and the average rate for 15-year mortgage has “fell to 3.18%” and has even dropped as low as 2.63%. These historically low rates make now the perfect time to buy a home. But what if you already bought a home and have a fixed-mortgage? Are you simply stuck paying a heavy interest for a long time? The short answer is most likely no.

In recent years, refinance has become a very popular term because of the low interest rates. To put it simply, when you refinance, you are paying off the initial debt by picking up a new one with a better rate. This is an option that many people have found to be fruitful. Refinancing should be an option if you can pass these two metrics. First, in order to qualify to refinance your mortgage; your credit score, financial stability, assets, history of payments, and the value of your home will be taken into consideration– if the value of your house is less than what you owe the lender (often called being underwater), then you will not be able to convince another lender to refinance the loan. Secondly, have you already paid off a huge chunk of your mortgage? Let’s say you’ve already paid 22 years’ worth of mortgage; would you really like to spend another 15 (instead of 10)? Probably not, because refinancing will only add to the overall length to your loan. However, doing so does lower your monthly payments and can offer some relief. If the above scenarios do not affect you, then by all means, go ahead and refinance!

Note**

It is advised that refinancing be reserved for people with good credit score. Make as few inquiries regarding new mortgage options as possible; asking for refinancing obliges lenders to do a hard inquiry on your credit score which can reduce it by quite a few points and multiples of these appear as red flags for the lenders because you appear desperate for financial relief.
Also refinancing means that you will be under a new contract and there will be closing costs and fees associated with the process.

Next, talk to your lender and try to convince them to give you a break on the high rate. If you are lucky, and maybe if you have a great relationship with your lender, this conversation will be as easy as just discussing a new plan and that’s it. But, for many, this method can be a brick wall. Most times, asking for a break on interest works better when you are financially struggling to meet your obligation. The lender would much rather help you stay afloat and pay back the principle than continue to capitulate on the high interest. More often than not, they will significantly lower you rate. However, you will have to convince the lender of your financial hardships. This could be done by presenting your bank statements, bills, and other financial records; throw in a heartfelt letter to enhance your chances.

**Tip**

If you do get offered a new interest rate and you can afford to keep paying the amount from the previous deal, then continue paying that amount; this amount will go towards your principle and help you pay off your loan faster and save you additional money on interest.

This next piece of advice is for those who are doing more than fairly well in terms of their financial standing.

Interest is how banks make profit on loans; they want you to spend a whole lot more that what you originally borrowed. So, if you are in a situation where you can afford to pay more than what is required, then by all means do it; paying more towards the principal is the healthiest way to handle loans. This may seem obvious, but a lot of times people do not pursue this idea and face huge losses in the long run.

Which one of these options is best suited for you? Share you opinion with a comment below!

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