Is Your Mortgage Payment too High? Here are Several Options for Homeowners

Many homeowners find themselves in a situation where they are having a hard time making their mortgage payments. Other homeowners may simply want to know how they can get a better rate instead of giving their hard earned money to their mortgage lender. Either way a
lower mortgage payment is only good for your pockets.

If you own a home and you want to lower your mortgage payment, here are some of the options you may want to consider.

1. Refinance to a Lower Fixed Interest Rate
If you have made your mortgage payments on time, you may simply be able to refinance your loan at a lower interest rate provided you have a better credit history than when you first financed your loan. If you have bad credit, this is probably not an option for you because your interest rate will probably be higher.

If you choose this option you want to aim for a loan that will lower your interest rate at least 2%. This loan is usually worth absorbing the costs of refinancing. But remember, this is only in the case of a simple rate/term refinance.

2. Refinance to a longer mortgage Term
Another way to lower your monthly mortgage payment is to refinance to a longer mortgage term. This can be counterproductive because you end up paying more and longer on your mortgage. But if you really need a lower payment, this is an option you can pursue.

If you choose this path, try to extend your term as little as possible in order to minimize the balance and length of time you pay your loan back.

3. Refinance to an ARM Mortgage
An ARM or an adjustable rate mortgage is another way you can also lower your monthly mortgage payment. You can get a low interest rate for 1,3,5 or 7 years before your mortgage adjusts to a higher rate. If you choose this type of loan, make sure you preserve a good payment history so you are in a position to refinance your loan before your rate goes up.

4. Refinance to an Interest Only Loan
An interest only loan is another way you can refinance to a lower payment because you are only paying the interest on the loan and no principle. This means at the end of your loan term, you will owe the entire balance of the loan. The loan balance does not go down because the principle is never paid down.

This will help give you a lower payment, but is actually a dangerous loan if you dont know how to take advantage of its benefits. In order to take full advantage of this loan, you need to invest the money you save and maximize the tax advantages of paying the interest. This is only if you plan to keep the loan for the entire term.

If you only need to get a mortgage payment for a couple of years, you can refinance to another type of loan where you are building equity at a later time.

5. Get a Deferred Interest Mortgage/Negative Amortization
This is a loan where the mortgage payment does not cover the amount of interest due on a loan. As a result the balance actually rises. This becomes a very dangerous loan for those who dont know how to use it properly.

This loan is also used by those who want to maximize the tax benefits and increase the investment potential of their dollars. Some people simply invest the money they save and end up with much more money after their loan term than those who simply payoff regular 30 year mortgage.

6. Get an Option ARM Mortgage
The option ARM is a mortgage that gives you a combination of some of the types of loans discussed above. There are variations, but the basic option ARM gives you the option of paying one of four monthly mortgage payments each month. The four types of loans are often a 30 year fixed rate, a 15 year fixed rate, an interest only payment and some type of negative amortization payment.

This can give you lots of financial flexibility if you understand how to use this loan. Once again the deferred interest payment is an option, but you dont want to use this unless it is part of an investment strategy where you will come out ahead. The other situation you may want to get this loan is if you simply cannot make the payment for any of the other loan options.

If you find yourself paying on the deferred payment too much as a result of a money shortage, you will want to find another way to make your payments. Continuing to make the negative amortization payment will cause you to owe more than you home is worth.

These are some ways you can lower your monthly mortgage payments. As you can see each has its distinct advantages and disadvantages. In order to decide which loan is for you, evaluate your spending habits.

If you are the type of person who is very disciplined about money, the negative amortization or the interest only mortgage may be a good option. If you dont have a lot of discipline, you are probably better off with adjustable rate mortgage or a fixed rate mortgage.

About The Author-- Rod Davis is a loan officer and chief writer of the Financial Mailbox Newsletter. You can find powerful articles and guides on saving Money, credit improvement, debt reduction, investment, finance and Real estate on his web site at Financialmailbox.com Microbusinessmedia.com

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