Mortgage interest may seem like just another fee that gets tacked onto your monthly mortgage payment, but it can really add up over the years. Your mortgage interest rate affects home affordability, so it is always a good idea to consider what actions you can take to get the lowest interest rate possible before you commit to paying an amount that you can’t truly afford.
If you already own a home, you are familiar with the impact mortgage interest can have on the cost of your loan. Even though you were not able to get a lower interest rate when you bought your home, you still have options available to help you lower your mortgage interest rate now.
For those interested in lowering your mortgage interest rate, two options you could consider are refinancing and loan modification.
- Refinancing
Refinancing your mortgage is when you take out a new loan to repay your original home loan. Homeowners opt to refinance for many reasons, but one of the benefits is that they can take advantage of lower interest rate and payment. Lenders will once again look at a variety of factors to determine your mortgage interest rate, and depending on what they find, it is possible to get a lower interest rate.
Again, a lower interest isn’t the only reason homeowner refinance. Because it is a new loan, borrowers can also change their interest type, so if they previously had an adjustable rate, which can lead to higher payments due to changes in the market, they can switch to fixed and enjoy a more consistent, predictable monthly payment amount.
- Mortgage loan modification
Mortgage loan modification is often a step people take when they can’t afford their monthly payment amount. Unlike refinancing, mortgage modification doesn’t require homeowners to take out a new loan to repay the original home loan. Because this option allows you to modify the terms of your loan, you could get a lower interest rate for your existing mortgage.
This process might be a lot simpler than refinancing because there is no need to apply for a new loan. However, like refinancing, it could also result in a different loan term, not just a lower interest rate.
Additional considerations
If you don’t want to go through the process of refinancing or modifying your loan, another route you could consider is prepayment.
Typically, homeowners make payments for their mortgage according to the payment schedule. When you prepay your mortgage, you are paying off the full balance before the loan term lapses. If you have some extra cash to spend, you can prepay your loan by making larger monthly payments or additional payments to get the loan paid off faster.
Prepaying your loan won’t necessarily lower your interest rate, but you will pay less in interest with this option because you are shortening the loan term. Lenders make money on the interest you pay for your mortgage, so depending on the lender, if you pay off your loan early, you may have to pay a prepayment penalty or fee, which is a fee charged to borrowers who pay off their loans before the term has expired. However, there are some lenders who do not charge prepayment fees.
As an experienced homeowner, you already know how mortgage interest can drive up the cost of a home. You may not have managed to get the best deal when you first purchased your home, but doesn’t mean you have to continue to pay a mortgage with a high interest rate. Since you have options, explore which is best for your situation and get your mortgage iterate rate reduced to something more ideal for your financial situation.
