For most people, a mortgage payment is the largest monthly bill in the budget. With interest rates on new mortgage loans still historically low, you might feel stuck if you have been paying your mortgage faithfully for years, but now find your house is worth less than what you owe. The best thing you can do is to find ways to save money on your mortgage payments and mortgage costs. Here are a few tips to do that:
• Claim your full tax deduction. You can reduce the amount of your income on your annual tax filing by deducting the amount of interest you pay on your mortgage loan. Make sure you itemize your deductions and remember you can reduce your mortgage costs this way on a principal residence as well as a second home. Talk to a tax advisor if you are having trouble understanding how to claim this deduction, or if you have never itemized your deductions before. The tax benefit is often one of the best reasons to buy a home.
• Make an extra mortgage payment when you can. This might seem impossible if every dollar in your budget is accounted for, but sometimes we get bonuses, gifts and surprise sums of money that we were not anticipating. Instead of blowing it on a new television or a pair of new shoes, put the extra cash towards your mortgage. When you make an extra mortgage payment and you tell your lender you want it to go towards paying down your principal, you will make a larger dent in what you owe. Some people also set up a bi-weekly mortgage payment schedule in order to pay off their loans quicker. If you go this route, construct it carefully so you are paying down the principal faster, and not just paying half of a monthly mortgage payment every time you send in a check.
• Refinance your loan. Today’s interest rates are probably lower than they were when you bought your house or initially negotiated your mortgage loan. If your home’s value is still high enough that you will qualify for a refinance, talk to lenders about your options. Having a lower interest rate will reduce your mortgage costs every month and help you pay off your loan for less money in the long term.
• Consider loan modification. If you have been struggling to make your mortgage loan payments and you face a financial difficulty, talk to your lender. There are several federal programs in place that can help homeowners reduce their mortgage costs and avoid foreclosure. Talk to a lender about resetting your monthly payment if other modifications are out of the question. Some banks will be willing to reduce what you owe if you can give them a good reason to do so.
• Try to cancel your Private Mortgage Insurance (PMI). If you bought your home with less than 20 percent down, you probably had to buy mortgage insurance. Take a look at how much of your home you actually own outright. If your mortgage balance is below 80 percent of what you owe your lender, you should be able to cancel your PMI without any consequences.