For many people purchasing a home one of the most common questions is "How can I get a lower monthly payment?" There are many different options available that can help you get a lower payment. Some of the options available that will typically help you reach a lower monthly payment are:
The pros and cons of each option will be discussed in more detail below.
- Adjustable Rate Mortgage (ARM)
- Interest Only
- 40/45/50 Year Amortization
- Option ARM
- 2-1 Buydown
There is also Seller contribution. You can have your seller pay buydown points to get a lower rate thus qualifying your for more home.
Fixed Rate Pay Option mortgages combine the principal and interest and interest only options with a cash flow option which is generally half of what you're paying with a regular loan. This minimum payment option is usually a payment equivalent to paying a 1% to 2% interest rate which allows you to defer the balance of the interest due that month for several years, using the untapped equity in your own home to carry the deferment. Unlike much maligned option ARM mortgages, these fixed rate pay option loans offer true fixed rates for 3, 5, 7, 10 or even 30 years.
One of the best ways to get a lower payment is to improve your credit rating. If you bought a home with a sub prime mortgage and have made timely payments and your score has increased you may be able to qualify for a conforming mortgage with a lower rate.
There are new interest only programs that are combined with long term fixed amortization lengths. These programs are fixed for 30 years, but have interest only options for the first 10 or 15 years. These can be ideal for borrowers who like the stability of a 30 year mortgage but want the lower payment option that been available for the short-term adjustable rate mortgages.
Refinancing into an interest only loan will lower your mortgage payment. In an interest only loan payments are not made on the principal of the loan and the loan amount does not decrease.
If you already have a home and have a mortgage on your home you can refinance your home to obtain a lower monthly mortgage payment. When you refinance your home mortgage loan you can do a number of things. You can get cash out of the equity in your home, you can lower your interest rate, you can change your loan term (say from a 30 year term to a 15 year term to save a ton on mortgage interest), you can even increase your loan term (say from your 15 year term to a 30 year term to help save money each month on your payment), you can change your mortgage program from a fixed rate to an adjustable rate or an adjustable rate to a fixed rate, and you can accomplish many other things by refinancing. Consult a mortgage professional immediately before interest rates get too high.
Other options for lowering your payment might include refinancing into an interest only loan program. There are even lenders who will base your loan payments on a 40 or 50 year amortization length. These options will lower your payment if your interest rate stays the same.
When purchasing a property an interest only loan may be a good option if you expect your income to increase in the future, your property is in a rapidly appreciating area or if you have considerable equity and don't plan on keeping the property past the interest only period.
By using an Option ARM loan product you will be able to take advantage of a lower monthly payment. These loans are established with different payment options. The deferred interest payment would allow for very low payments. These loans are structured for payment flexibility and cash flow.
A 2-1 Buydown is a temporary discounted interest rate. A borrower gets a discounted interest rate that is the qualified interest rate less 2% in the first year of the mortgage term. In the second year, the effective interest rate is the qualified rate less 1%. From the third year on, the interest rate is the qualified rate. With a 2-1 Buydown the borrower enjoys a lower payment in the first two years because of the temporary lower rates.