Refinancing your Mortgage
If you’ve considered refinancing your mortgage to save some cash on your mortgage payment, there are a couple of things you’ll need to consider.
Refinancing can be a great way to get a lower interest rate—and a lower monthly payment as a result—but it has some drawbacks too.
You’re essentially starting over on your 15 or 30-year mortgage.
Plus, you’ll have to show the bank you have the equity in your home to do it. Your home’s equity is its market value minus what you still owe on the loan.
Lenders will tell you that lowering your monthly rate by just 1% is worth the hassle of refinancing. Still, you’ll need to account for your closing costs and break-even point.
Let’s say you go ahead with a refinancing option that’ll save you around 1%.
If your closing costs for the loan are $7,500 and you manage to save $200 per month on your mortgage payment, your break-even point will be 25 months.
Refinancing for the Long-Term
If you’ve read our guide to mortgage payment calculations, you’ll know that a 15- year mortgage often means less interest paid for a much higher monthly payment.
So, refinancing to a 30-year mortgage term means lower monthly payments and more money in your pocket, right?
Not exactly. Because you’re starting over on your mortgage, you might save some cash on your monthly payment…
But you’ll end up paying a whole lot more in interest to the bank.
This is especially true if you’ve been making payments on your initial mortgage for a while before refinancing.
The result could be 45 years of interest going to your lender’s pocket!
So, be cautious about refinancing offers from the bank, even if the decrease in your monthly payment is tempting.
Ditch the Mortgage Insurance
Think back to when you were first applying for your mortgage.
If you weren’t able to cover the minimum 20% down payment on your mortgage, chances are the lender tacked a fee called private mortgage insurance (PMI) onto your monthly mortgage payment.
Think of it as insurance for the bank.
Generally, PMI accounts for 0.5% to 1.5% of your loan’s principal in addition to your monthly payment.
So, if your loan was $300,000 at a 3% interest rate with a 15% down payment, you can expect to pay around $200 a month for PMI.
Until you reach 20% equity in your home, you’ll usually be required to keep PMI on your monthly mortgage payment.
But if you’ve gotten past 20% equity it’s a different story.
The bank might not let you know, but you can ask them to drop PMI from your mortgage payment provided you have the equity to show for it.
Mortgage Forbearance
If you’re in a rough patch financially, you may want to consider mortgage forbearance to lower your monthly payment. At the very least, forbearance will provide temporary relief.
Just be sure to contact your lender before you’ve missed a payment, not after.
During a mortgage forbearance period, your lender may agree to lower or suspend your monthly mortgage payments if you’re unable to pay.
A typical forbearance period will last from 3 to 6 months.
The trouble is, you’ll be required to pay back whatever amount you’ve missed during forbearance at the end of the period. So, be sure to discuss this option with your lender so you know exactly what you’re getting into.
If you’ve considered mortgage forbearance recently, know that you’re not alone.
The economy has taken a hit, and keeping up with monthly mortgage payments is a tall order, on top of all the other expenses you have to keep up with.
In fact, as of June 2021, the Mortgage Bankers Association estimates around 2 million Americans to be using forbearance plans.
Restructure your Mortgage
Like forbearance, restructuring your loan with your lender may be a good option if you’ve fallen on hard times financially.
If you notify your lender early, chances are they’ll offer you the option of modifying your loan. The possibility of foreclosure is generally a lose-lose situation for you and the lender. So, they’ll usually try to work with you before losing money on a foreclosure.
When you restructure or modify your loan, you’re not refinancing—you’re changing the terms of your existing loan.
Mortgage modification could mean exchanging your adjustable rate for a fixed rate, getting a longer loan term, or securing a lower interest rate.
The issue with this option? The bank controls your loan modification, and you’ll only be considered for loan modification if you’re in a state of imminent default on your payment.
Plus, mortgage restructuring can damage your credit score. In the long run, this might work in your favor because your credit score would be severely damaged by a foreclosure. So, you’ll need to weigh the pros and cons of this option carefully before making a decision.
What we Can’t Expect
Like we said—if you’ve been considering some of the more drastic options to lower your monthly mortgage payment, you’re not alone.
The economy has hit a low point recently, and still life goes on.
On top of your mortgage payment, you have to provide for yourself and your loved ones.
Unfortunately, we can’t predict what expenses will pop up next.
It’s a common problem: homeowners who save and spend well within their means fall into financial chaos due to one fluke.
It could be car troubles, expensive medical bills, or even the loss of a job or livelihood, but the theme remains the same…
Hardworking Americans that lose everything because—just like the rest of us—they were unable to expect the unexpected.
As we mentioned earlier, the bank might try to work with you before foreclosing on your home, but that doesn’t mean they’ll be sympathetic even if you’ve run into an unexpected financial disaster.
The fact is, your lender is looking to get paid. They’ll take whatever steps necessary to get your loan amount back and then some.
So, while we can’t control what your lender does, we decided to tackle the problem at its source.
We think you’ll agree, the root of the problem is DEBT.
Finding a Solution…
Nobody likes debt. It’s easy to get into and much harder to escape.
So, with the financial situations of everyday Americans in mind, we created the Money Max Account.
Money Max is designed to put the decisions about your money back in your hands.
By tracking your debts in a centralized location and calculating the best possible way out of debt, the Money Max Account can help you get out of your mortgage and other debts in as little as 7-10 years.
That means you won’t even have to think about refinancing or restructuring your mortgage with the bank. Money Max helps put the power back in your hands.
It’s your money after all, shouldn’t you decide where it goes?
We certainly think so. That’s why—unlike your lender—Money Max lets you make the decisions every step of the way.
Dreaming of a debt-free lifestyle right about now? It can be yours in less time with the Money Max Account.
For questions about the Money Max Account and what it can do for you, give us a call—representatives are standing by to give you all the information.
For more about United Financial Freedom and our history, visit our homepage.
Family Bank Solutions, Inc.
Independent Agent
Phone: 773-744-2508
Email: familybanksolutions@gmail.com