How you can Lower Your Monthly Mortgage Payments

When purchasing a home, it is helpful determine up front how much you want to spend per month. To achieve these monthly payments, you can adjust some of the variables of your loan. This article explains how to lower your monthly mortgage payments.

When you decide to buy a home, getting the best possible loan is important. It can save you thousands of dollars. How can you keep your monthly mortgage payments down? Following are the different components of a loan that can affect your monthly mortgage payments.

1. Down Payment

The down payment is how much cash you will put down up front. The rest of the price is how much you will finance with the lender. For example, if the purchase price is $300,000, and you are putting 20% down, that means you will be putting down $60,000, and the loan amount will then be $240,000. The more money you can put down, the lower your monthly payment will be. The less you finance, the less you need to amortize over the life of your loan. You usually get a better interest rate when you put down at least 20%, so that helps as well.

2. Loan Life

The number of years over which the loan will be amortized affects the monthly payments. The longer the life of the loan, the less you pay each month because, it is spread out over a longer term. Typically, the longest term is 30 years. Of course, the longer the term, the more total interest you will pay, so be sure to weigh that in as well.

3. Interest Rate

One major variable that will differ between lenders is the interest rate. This is the rate they are charging you for borrowing the money. The interest rate will change your mortgage interest payment each month. The higher the rate, the more your payment. For a $240,000 loan, the payment including just principal and interest at 6.5% would be $1,517. At 7.0%, it is $1,597. An $80 difference per month does not sound like a lot, but over 30 years, that is $28,800.

4. Property Taxes

Property taxes are added into your monthly cost of owning a home, either by escrowing it with the lender or by you saving to pay it at the end of the year. The area where your property is located will influence this most of all. The higher the tax rate and the higher the appraisal value, the more dollar amount you will pay each month.

5. Insurance Rate

Similarly, the higher the insurance rate, the more you will pay per month. This affects mostly houses that are in special insurance areas that need more coverage, like flood zones or hurricane areas.

6. Points

The borrower pays points in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely misaligned with the other quotes, it might be because they are quoting you a rate with points. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment.