4 Ways to Save Money on Your Mortgage, According to Finance Experts

published Dec 22, 2020
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Money is tight for everyone right now, but for the almost 20 million Americans currently collecting unemployment, the situation is dire. People are struggling to afford basic necessities and housing. While interest rates are at record lows, not everyone can take advantage of them and refinance their way to a lower monthly payment. 

That doesn’t mean there aren’t any options for lowering your monthly mortgage payment. Here, two finance experts explain how to do it.

Check the fine print of your existing mortgage

Generally speaking, lenders need to verify your income before they can qualify you for a refinance. However, if your current mortgage is through a government-backed program (like a VA or FHA mortgage) there may be an exception to that rule: a streamline refinance. “With a streamline refinance, the lender does not reverify income or employment,” explains Andy Taylor, GM of Credit Karma Home. “However, to be eligible, the borrower would need a history of on-time mortgage payments.” 

Ask your lender for a loan modification 

You can ask your lender about a loan modification—options include changes like an interest rate reduction (which may allow you to take advantage of today’s lower rates) or extending your repayment period (which lengthens the term of your repayment plan)—to change the terms of your existing mortgage. 

“Unlike refinancing, a loan modification alters the conditions of your current loan by potentially lowering your monthly mortgage payments, but [may] potentially cost you more over the lifetime of the loan,” Taylor says.

The possible downsides don’t stop there. According to Taylor, a modification can negatively impact your credit. “It’s crucial that you speak with your lender about how they will report this change to the bureaus,” he says. “If they plan to report your loan modification, looking into a forbearance program is likely the better choice in terms of protecting your credit.”

Ask your lender for a forbearance agreement

Under the CARES Act, borrowers with government-backed mortgages can request a mortgage forbearance for up to one year. “Although borrowers with privately-owned mortgages are not covered under the CARES Act, most lenders are offering forbearance for six months to a year, usually in multi-month periods that you’ll negotiate with the lender directly on,” Taylor says. “When entering forbearance, make sure to get in touch with your lender before you stop making payments, since forbearance isn’t automatic.” A missed payment can sometimes disqualify you for a forbearance, so don’t stop making payments until you’ve spoken to your lender. While a mortgage forbearance doesn’t directly impact your credit score, the fact that your account was placed into a forbearance agreement will be noted on your credit report and can make qualifying for a refinance more difficult during the first year after it’s ended. 

Find someone to cosign for your refinance 

Refinancing your mortgage can still be an option when you’re unemployed if you can find someone to sign on the dotted line with you, according to Monica Rodriguez, a financial adviser with Northwestern Mutual. “Finding a co-signer, such as an employed parent or spouse, can increase your chances of getting approved, as your co-signer acts as a safety net in case you cannot make your payments,” she says. 

Just remember, refinancing still comes with a cost. “If you recently refinanced (i.e., within the past year, as interest rates have been on the decline even prior to the pandemic), you might want to crunch some numbers to consider whether it will be worth it, as refinancing can cost upwards of $3,000,” Rodriguez says. Additionally, if you plan on selling anytime soon, the money you save in the short-term may not add up to much in the long-term.