Are your mortgage payments stressing you out? Beat payments at their own game with these four tips.
Kelley Long, a personal finance expert in Chicago and spokesperson for the National CPA Financial Literacy Commission, says, "We have enough stress in our daily lives from things like work, family, and our go-go-go society. Opening your mail – and your mortgage bill – should not add to it. If you take the time to explore your options, you'll find a few really easy ways to reduce that burden for both the short and long-term."
Ready to learn about how you can take the stress out of paying your mortgage? Keep reading for four easy tips.
Tip #1: Refinance Through HARP
If you're stressing out because you can't refinance your underwater mortgage, stop panicking.
While you're in a difficult situation, you do have options: If your loan was originated before May 2009 and owned by Fannie Mae or Freddie Mac, you could be eligible to refinance through HARP – the Home Affordable Refinance Program.
Paula Pant, founder of AffordAnything.com, a money management website that serves over 15,000 readers a month, says HARP is a loan program designed by the Departments of the Treasury & Housing and Urban Development for people who are underwater on their mortgage and thus, unable to qualify for a traditional refinance.
"If you find out you're eligible, the purpose of HARP is to help you snag a lower interest rate, thus translating into a lower monthly payment – and less money paid in interest over the remaining life of the loan," says Pant. And a lower monthly payment equals less stress!
Tip #2: Negotiate Your Property Tax Rate
We know what you're thinking – how can you negotiate your property taxes? We'll explain in a minute, but before we jump right in, let's take a little detour to understand how mortgage payments are constructed. Pant says that your mortgage consists of four different portions: principal, interest, taxes, and insurance, collectively known as PITI.
"Taxes and insurance are 'escrowed' monthly," she says. "For example, if you owe $2,400 in property taxes each year, you'll pay $200 per month within your monthly mortgage payment towards taxes. Those taxes are based on your county's assessment of your home value."
But here's the problem. Many counties assessed home value when the housing market was at its peak just a few years ago, and haven't re-adjusted it to reflect current, lower home prices. So there's a chance you might be paying too much for your taxes.
Pant says you don't need an appraisal, just an assessment by the county. And you can get the process started by calling your local county line and voicing your intentions.
But how much can you expect to save? Pant gives an example:
"If you can get your annual tax rate to drop from $2,400 per year to $1,800 per year, you can get your monthly tax payment to drop from $200 per month to $150 per month. That's $50 less you'll need to worry about coming up with every month."
Tip #3: Switch to a Higher-Deductible Homeowner's Insurance Policy
Your homeowner's insurance costs are often lumped in with your mortgage payment, so if you can lower your homeowner's insurance premium, you'll lower your overall mortgage payment.
One way to do this is to switch your homeowner's insurance to one with a higher deductible – but a lower monthly payment. And this may be smart way to reduce mortgage costs since only about 3 percent of people file an insurance claim over the course of their homeownership, says home insurance agent, Vicki Tu'ua. That means there's a 97 percent chance you won't have to pay the high deductible.
The savings from the higher-deductible route was a path that intrigued Pant.
"We had homeowner's insurance with a $1,000 deductible," Pant explains. "We called our agent and got a quote on insurance with a $5,000 deductible. Our agent told us we'd save about $600 a year ($50 per month!) on this new plan, so we switched to insurance with the higher deductible and instantly lowered our monthly mortgage payment," she says.
If you're thinking about taking this route to decrease your monthly payments, Pant also advises creating a "home emergency fund" that could cover the higher deductible – just in case you do need to use it.
Tip #4: Reduce Your Interest Rate by Setting Up Automatic Payments
Out of sight, out of mind…that's the theme of this last tip.
Here's what we're talking about: Long suggests setting up a separate bank account for your mortgage, in which funds are transferred via direct deposits from your paycheck. Then you can arrange for your mortgage company to automatically withdraw your payment from that account. And depending on your bank, you could get a nice interest rate reduction by partaking in this service.
"Some banks will give you a small interest rate discount if you set your payment up for auto-pay through them, which saves you more money as well," says Long.
But how will this help relieve your stress?
"You'll never even have to worry about making your payment, taking all the stress away," says Long. "The reason I suggest a separate account is so that you're never tempted to spend the money designated to pay your mortgage, so you never have to stress about the money being there in the first place."