(updated November 2014)
Griping about the government's inability to balance the budget is a national pastime. The apple doesn't fall far from the tree: there are plenty of people with the same problems, albeit on a much smaller budget. If you find that you've spent your way into heavy debt, consider using the following tried and true methods for reducing your monthly mortgage payments.
The easiest way to lower your payment is to refinance your current mortgage to a lower rate. While rates have risen somewhat from the rock-bottom historic lows they hit in late 2012, they're still unusually low when compared to the historical rate climate. If you didn't cash in on these low rates, you still may be pleasantly surprised at what a mortgage refinance could do for you.
Coming to terms with a long-term loan
Another way to lower your monthly payment is to increase the repayment term of your loan. If you've had a 30-year mortgage for several years and are finding your finances are tighter than you expected, you can refinance back into a new 30-year loan that will stretch out your term and reduce your monthly payments. If things are really tight, some lenders even offer a 40-year mortgage to shave a few extra dollars of that monthly payment.
Similarly, if you previously refinanced into a 15-year mortgage and are finding the payments are more of a financial burden than you expected, you can still refinance back out into a 20, 25 or even 30-year loan. The fact that you may have previously refinanced into a shorter term doesn't mean you're stuck with it.
While this definitely frees up short-term money, you'll eventually wind paying more money in interest payments over the long-term. This is because you're not only paying interest over a longer period of time, longer-term mortgages also carry higher interest rates than shorter ones do. You may also find that stretching out your loan reduces your monthly payment by less than you expect, particularly on longer-term loans. On a 40-year mortgage, for example, this combination of a higher rate and compounding interest may reduce your monthly payment by only 5-10 percent compared to a 30-year loan, despite stretching out the life of the loan by one-third.
Look at insurance coverage
Another way to reduce your monthly mortgage payments is to see what secondary costs you can reduce or eliminate. Are you carrying private mortgage insurance (PMI)? If so, you're probably aware that you can ask to have it canceled after reaching an 80 percent loan-to-value ratio on your remaining mortgage balance vs. the current value of your home.
With the instability of home values in recent years, many people are overlooking this option. However, if you haven't checked into home values in your neighborhood lately, you might be pleasantly surprised. Values in some areas have recovered fairly well, so you might be able to cancel private mortgage insurance sooner than you think. Checking recent sale prices of nearby homes should give you a good idea of whether it might be worthwhile to check into canceling your PMI.
Another option is to take a close look at your homeowner's insurance. What are you paying for? Are you overinsured for certain aspects of your insurance? If so, modifying your coverage can save you a few bucks. You can shop your policy around to other providers to get their advice on what you're over-covered for or what your current policy may be missing.
Some insurance experts suggest changing homeowner's insurance providers every few years, owing to the way such insurance is often marketed. Insurance companies sometimes give you a cheap policy right off the bat to get you signed up, then quietly raise your premium over the coming years. In that situation, switching to another insurer can get you back to the new customer rate. Just make sure your new policy doesn't scrimp on important parts of your coverage as a way of reducing the premium.
The thrill of a single bill
Rather than simply focusing on your mortgage payment itself, you can also use your mortgage to reduce your total monthly indebtedness on all fronts.
How many credit cards do you have? Too many? If you have multiple pieces of plastic generating multiple monthly bills, consider a debt consolidation mortgage loan, where you borrow against your home equity to get money to pay off your credit cards and other high-interest rate debt.
Debt consolidation works because the rates for credit cards are generally much higher than those for mortgage loans - sometimes more than 10 percentage points higher. That's a huge difference. Home loans are also tax-deductible, another reason to purge the plastic.
Whether you consolidate your debts into a new primary mortgage through a cash-out refinance, or through a second mortgage such as a home equity loan, you'll most likely lower your overall monthly payments.
From blues to green
If the monthly bills have you singing the budgetary blues, take a good look at your mortgage payment options. Start checking out rates and crunching numbers on our mortgage loan calculator. The results might show you just how easy it can be to move out of the red and into the black-and into the green of cold cash.