October 1st, 2018 9:36 AM by Jackie A. Graves, President
If you met the prerequisites to purchase your
home but are now struggling to make your mortgage payments, you're not
alone. According to RealtyTrak, 1 in every 2,005 homes is in foreclosure.
In New Jersey, it’s 1 in every 718 homes; in Maryland, it’s 1 in every
1023 homes. You may feel that you’re also on the fast track to
becoming another foreclosure statistic. However, don’t give up yet. You may be
able to lessen your mortgage woes by reducing your monthly mortgage payments.
Every situation is different, so Investopedia spoke with several mortgage
experts to find seven different options.
Spacing your loan out over a longer period is one option that can
reduce your monthly payment amount. Refinancing to
a longer-term loan is the simplest way to reduce monthly mortgage
payments–especially when cash flow is a problem, according to Al Hensling,
president of United American Mortgage in Irvine, California.
However, it's important to note that your interest
rate will increase. To offset this, Matt Hackett, underwriting,
and operations manager at? New York-based Equity Now
says the majority of mortgages have no prepayment penalty: “As a result, once
your financial situation improves, I recommend making higher payments to
increase the speed at which you pay down the principal,” says Hackett.
He also advises homeowners to make sure pre-payments are
allowed without penalty and suggests they determine the difference between
their current rate and the new rate on the longer term loan to see if it makes sense.
Refinancing to an adjustable rate mortgage (ARM)
is a viable option if you’ve almost finished paying off your mortgage. “More
and more consumers recognize the financial benefits an adjustable rate mortgage
can provide under the right circumstances,” says Hensling. A perfect example is
a homeowner that anticipates selling their home in the next three years and
currently has a $400,000 fixed rate loan at 4.25% paying $1,976.76 per month.
Hensling says if the homeowner refinanced to a hybrid adjustable
rate mortgage fixed for five years at 2.875%, this would reduce the monthly
payment to $1,695.57 per month and save $281.19 per month.
Jeremy Brandt, CEO of WeBuyHouses.com, agrees, adding, “If a home
is nearly paid off, the vast majority of the monthly payments are going to
equity and not interest. Refinancing to an ARM might solve short-term cash flow
issues by reducing the monthly payment at the expense of subsequent
payments." That being said, if interest rates start increasing, the
monthly payments may increase over a period.
If you have an ARM, switching to a fixed rate may not lower your monthly
payments, now, but it can stop your payments from going higher. “This makes
sense if current fixed rates are lower than the ARM interest rate, or if you expect to move later
than the next three years,” says Brandt. However, he warns that if you've been
in an ARM for a while, the fixed rate you refinance into may be higher than
your existing rate and this can cause your monthly payment to go up.
“??If you are worried about rates rising,
refinancing from an ARM into a fixed-rate loan provides the peace of mind of
knowing your payment won’t change,” says Brian Koss, executive vice
president of Mortgage Network in Danvers, Massachusetts. However, he agrees
that it usually means a higher monthly payment to start with than the current
If the value of your home has dropped, challenging your property tax may
provide some financial relief. Cara Pierce, a certified housing counselor at
Clearpoint Credit Counseling Solutions, a national nonprofit organization,
explains, “You'll need to contact the county tax assessor's office in the
county in which the house is located to see what type of information they will
need as proof that the housing values have dropped,” says Pierce.?
However, Pierce says this is a short-term strategy. She warns that
property values are increasing, and as they do, the property taxes will rise.
Also, be advised that it may cost anywhere between a few hundred dollars and
five hundred dollars to have your home appraised.
A loan modification is an alternative for
those who cannot finance their loan but need to lower their monthly house
payment. But, unlike a refinance, it requires a hardship. Pierce says borrowers
must show the lender that as a result of a financial
hardship, they are not able to continue making the regular monthly house
payment.“This process involves extensive paperwork that must be completed and
sent to the lender for review,” says Pierce.
She recommends that homeowners get counseling through a
HUD-certified organization to fully understand their options and get help
contacting the lender.? “However, not all lenders offer loan modifications
or may just offer short term loan modifications,” says Pierce.
Getting a home equity loan may provide immediate
assistance to struggling homeowners, but only if you have a lot of equity
in your house, which means that your home is valued at much more than you owe
on it. Anthony Pili, director of strategic planning at Greater Hudson Bank in
Bardonia, New York, advises struggling homeowners to consider paying off a
mortgage with a home equity line. “Banks usually cover all closing costs on
home equity lines. The savings in closing costs can be used to pay off the
principal balance quicker,” says Pili.
He adds that this strategy is highly effective for borrowers who
have the self-discipline to pay more than what is owed each month, since the
minimum payment is usually just the interest that has accrued during the month.
Depending on how much equity is in your home, eliminating the private mortgage
insurance (PMI) can lower your mortgage payments. “If you have
at least 20% equity in the property, I recommend contacting the lender about
dropping the mortgage insurance,” says Pierce. She explains that
borrowers who usually don’t pay 20% down are required to have PMI for at least
two years, but says there may be exceptions to the two-year rule. For example,
if the homeowner made improvements to the house that increased
the value, Pierce says the requirement may be waived.
?However, not all loans are
eligible for mortgage insurance to be dropped. For FHA loans taken out before
June 2013, Pierce says the rule is 22% down, and the homeowner is required to
have five years of PMI. With FHA loans after June 2013, the insurance may have
to be paid for the lifetime of the loan.
If you’re struggling with your mortgage, don’t throw in the towel.
There are various solutions that can help you stay in your home and manage your
monthly mortgage payments.
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