Main Content

Home Buyers: How to lower your monthly mortgage payment

front door with key

Are you eager to purchase a house but anxious about the hefty monthly payments? If so, you’re not alone. Many would-be homebuyers are struggling with proposed monthly mortgage payments due to rising interest rates and other economic factors.

Fortunately, there are a few different strategies that can help reduce the amount of money you pay each month on your home loan. In this blog post, we’ll discuss a few ways to lower your monthly mortgage payment and save money in the long run.

Affordability a Forefront Concern for Homebuyers

At present, interest rates are sitting at 6.42%, and homebuyers feel a significant strain from these raised payments. Consequently, their monthly payment has grown considerably due to these greater rates.

With the recent rise in interest rates, potential buyers are faced with two possible solutions: they can either raise their budget to accommodate a higher month-to-month payment or consider purchasing more affordable homes. Either way, this shift has had an immense impact on the housing market.

The impact of increased rates is reflected in the National Association of Realtors 2022 Profile of Home Buyers and Sellers:

  • Compared to last year, first-time buyers only accounted for 26 percent of total purchases; the lowest percentage since records were initially kept.
  • This year,the average age of a first-time homebuyer soared to 36 years old; an increase from 33 last year. The typical repeat buyer also experienced a rise in age up to 59 years – both records!

#1: Skip the Private Mortgage Insurance

One way to lower your monthly mortgage payment is by not paying for private mortgage insurance (PMI). PMI is an insurance policy that lenders require when the borrower puts down less than 20 percent of the purchase price of their home. The insurance protects the lender in case the buyer defaults on their loan. PMI can add hundreds of dollars to your monthly payments, so it’s important to consider ways to avoid it if possible.

Depending on your loan type, there are a few different routes to take to avoid paying PMI or to get rid of your existing PMI payment. Be sure to speak with an accredited mortgage lender before making any decisions so that you understand all available options and how they will affect your financial situation now and in the future.

Amy Ivy, a loan originator with Luminate Home Loans, suggests another alternative is to “pay an upfront mortgage insurance premium, instead of a monthly premium if the 20 percent down payment isn’t a possibility.  This is a way to keep a lower monthly payment but still provide the insurance needed for high loan-to-value transactions.”

#2: Lower your homeowner’s insurance rate

One way to lower your homeowner’s insurance rate is to shop around for better rates. You can compare rates from different insurance companies and find the one that offers the best coverage at an affordable price. Another option is to raise your deductible or switch to a higher deductible plan, which will reduce your premiums but increase the amount you would have to pay out-of-pocket if you need to make a claim.

You can also take steps to make your home safer and more secure, as this will often lead to lower insurance premiums. Installing smoke alarms, security systems, and storm shutters, cleaning up debris in yards or near the home, and keeping up with regular maintenance can all help lower your homeowner’s insurance rate. Additionally, being proactive about repairing any damage caused by disasters such as floods, fires or storms can help keep costs down.

Finally, many insurance companies offer discounts for loyal customers and for having multiple policies with them. If you have other types of insurance such as life or auto through the same company, you may be eligible for discounts on your homeowner’s policy. Speak with an agent from your current insurer to see what options are available for you.

#3: Temporary Buydowns: Lower Your Mortgage Payment in the Short-Term

Amy Ivy, with Luminate Home Loans, shared some insight into unique financing strategies that can help buyers achieve a lower monthly payment.

Recently, we are seeing buyers utilize temporary buydowns to help buyers achieve a lower monthly payment.  This strategy will allow buyers the purchase their desired home at the original sales prices while also keeping their initial monthly payment lower.

The most common temporary buydown is the 2-1 buydown (3-2-1 buydown is also available) which can help a seller attract more buyers and potentially sell their home quicker.

By offering a concession to the buyer, a seller can effectively help reduce the interest rate on a mortgage loan for the buyer for the first 2 to 3 years which can make the initial payment more affordable and allow a buyer to purchase at a higher price point.

For example, on a home listed at $700,000, with a 10% down payment and current interest rates, a 2:1 buydown would require a seller concession of around $14k.  The monthly payment (including just principal and interest) for the 1st year in this scenario would be around $3,000 a month. In order to achieve this same payment without a temporary buydown option, a buyer would have to purchase a home at $557,000, not $700,000. So as a seller, a $14,000 concession paired with a 2:1 buydown will give the same result as a $150,000 price reduction. Clearly, the concession is much more advantageous for the seller than drastically having to reduce the purchase price.

In short, a 2:1 buydown in the current market is a great strategy. It will allow buyers to ease the initial cost without the seller having to drastically reduce the sales price.

Contact Amy Ivy to learn more about obtaining a mortgage loan by contacting her at Amy.Ivy@goluminate.com or at 512-709-4924.

#4: Purchase Mortgage Points

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point is equal to 1 percent of your mortgage amount (or $1,000 for every $100,000). These points can be purchased or financed and they typically lower your monthly mortgage payments when you buy them. Depending on the situation and how much you’re willing to pay upfront, these points can save you thousands of dollars over the life of your loan. But it’s important to understand that not all mortgage points are created equal; different lenders offer different rates and terms when it comes to their mortgages so it pays to shop around before committing yourself.

Other ways to lower your monthly payment:

  • Refinance when rates recede
  • Purchase a home that can be partially rented out and put those funds toward your payment
  • Explore lesser in-demand areas in the Denver metro in order to purchase a more affordable home, your Usaj Realty agent will help you with this!
  • Look for homes with a price reduction — the seller may be willing to come down even more on the price
  • Ask your Usaj Realty agent what other seller concessions are an option for the particular property you want to purchase to lower your closing costs
  • Shop around for interest rates from multiple lenders and find the best deal possible

Contact Usaj Realty at info@usajrealty.com or at 720.398.2999 to learn more about home buying! We are here to help you with each step of the process.

Skip to content