Even after locking in your loan or after making a few years’ worth of payments, you may feel like there really isn’t anything you can do to lower your payment. Well, there are still a few ways you can put money back in your pocket even after you thought you had no options.
Rates may drop, but can your payment?
Not all rates are created equal. Therefore, not all “rate drops” are created equal. Let’s say that last week’s rate was at 5.5% and that you didn’t have to pay anything extra – like points – to get that rate.
Now let’s say that this week the advertised rates got better. Does that mean that your rate is now 5.0%? Probably not. What it probably means is it’s the same rate, but maybe you’re getting a credit from the lender or if you were paying points or fewer points need to be paid.
Interest rates are based off mortgage-backed securities, which go up and down throughout the day and even change day to day. So obviously lenders, to establish some kind of norm, have some margin that the market needs to move in order for you to benefit. And that’s called a float down policy.
Most lenders will require that the market moves enough that the difference is equal to a quarter in rate or about one point or 1% of your loan.
Now keep in mind that they are losing money because the market has shifted. So, most of them will split that difference with you, meaning your rate improved by an 1/8th, or perhaps before you’re paying one discount point, and now you only have to pay .5% because the market’s improved.
Today’s fluctuations typically won’t result in your terms improving because there’s normally just not that much variance. However, if you do see big shifts, talk to your loan officer. You don’t lose anything by them at least taking a look. It could lead to a lower mortgage payment.
Build equity faster
People love to talk about the power of biweekly payments to pay off a loan faster.
What they don’t tell you is not every loan or lender allows it and if they do there are some extra steps and sometimes fees involved. For example, some lenders want you to pay an entire monthly mortgage payment ahead before they will let you start paying biweekly.
Here’s another thing to try that’s easier to do: Pay extra to your principal (no, not the one at your kid’s school) The principal on your loan.
When you make your mortgage payment, you’re paying principal and interest. Those payments stay the same, but the allocation slowly shifts from interest to principal. Yes, you are paying mostly interest in the early years of the loan.
Most loan companies will apply any extra funds above the set payment to principal. Which makes that shift happen even faster and the impact can be huge. This builds your equity faster and lowers the overall amount you pay for your mortgage.
You don’t have to set up anything formally and you can even adjust what you send based on your budget.
It’s crazy what even an extra $100 month can do.
Remove PMI without a refi
Is your budget getting a little tight with all of these costs going up? Groceries. Gas. Utilities. You name it. It’s not like your salary is going up immediately or at the same rate, so how can you get a raise by lowering some bills? Dropping the PMI on your mortgage is one way.
And it can be done without doing a complete mortgage refinance.
In some cases, the PMI – or private mortgage insurance – can’t ever be removed or you have to pay your loan on time for a few years. But in some cases, like if you have a conventional loan and home values have gone up, all you may need is a new appraisal.
My team and I are available to help. Follow me or reach out to us to start the process.