Mortgage Q&A: “Do mortgage payments decrease?”
While everyone always seems to focus on mortgage payments adjusting higher, there are a number of reasons why a mortgage payment may actually decrease.
No really, there are, so let’s take a look, shall we…
Mortgage Payments Decrease on ARMs
Well, the damage may not be as bad as it originally appeared because many of the mortgage indexes tied to these loans are now rock-bottom.
As a result, some homeowners who stayed in these seemingly “exploding ARMs” may actually see their mortgage payments fall. And the savings could be significant.
When You Pay Down Your Mortgage
This essentially re-amortizes the mortgage so the new, smaller balance is broken down over the remaining months left on the loan.
Your monthly mortgage payment is adjusted lower to reflect the smaller outstanding principal balance, but your mortgage rate doesn’t change.
While this could increase household cash flow, you may be better suited to pay off your mortgage early by making your old, higher payment despite the lower balance.
Keep in mind that mortgage payments won’t decrease automatically simply by making extra payments. All that will accomplish is a quicker payoff period and interest savings.
For example, if you pay an extra $500 per month on a $300,000 mortgage set at 4%, you’ll pay off the loan 11 years and 8 months early. But payments will be the same every month until the loan is paid in full.
In other words, future payments won’t go down to reflect earlier ones, but because the loan will be paid off sooner than scheduled, you will save more than $92,000 in interest over the life of the shortened loan.
Refinance to a Lower Rate
Here’s a no-brainer. If you want a lower mortgage payment, look into a rate and term refinance.
Because mortgage rates are still very low, your mortgage payment will probably decrease significantly if you refinance now.
However, that doesn’t mean it’s always a good time to refinance.
Still, this is one of the most popular and easiest ways to lower your mortgage payment. It just requires a little bit of work on your end.
If you’re not sure whether to refinance or not, consider the refinance rule of thumb argument.
Shop Your Insurance, Look Into a Tax Reassessment
If you can snag a lower premium, your mortgage payment will decrease as a result. Another pretty simple way to save money.
Also look into a tax reassessment of your home if you feel it is overvalued.
Property values have been on the decline lately, so you may be able to save some money on property taxes by asking your county recorder’s office to reassess your property.
Remember, a mortgage payment is typically expressed as PITI, which stands for principal, interest, taxes, and insurance.
So be sure to address each component to save money on your monthly housing costs.
See also: Do mortgage payments increase?