Can You Lower Your House Payment Without Refinancing?
Yes, there are a number of ways to lower your house payments without the need to change your mortgage provider, but be aware that they may not be ideal long term solutions.
Firstly, you could potentially take in a lodger if you have a spare room and would consider letting it out. Another possibility would be to explore whether you could save money on your mortgage insurance, or cancel your policy altogether, if you’re willing to take that risk.
Taking in a lodger
Many people have a spare room, especially if the kids have left home. So a work colleague who faces a long commute, or even a student might make suitable lodgers.
While this is not technically a way to reduce your mortgage payments, it can significantly offset your repayments.
In fact, you can earn up to £7,500 a year tax-free under the Government Rent-A-Room Scheme.
This can be a big decision, so take the time and do a little research, and find out the pros and cons of taking in a lodger. Your local council may have guidelines that you might find useful.
Changing your mortgage insurance
On average PMI premiums can range from 0.5% to 1% of the entire mortgage, which can add up to a substantial amount over the term of the loan.
You can cancel your PMI when you have paid off 20% of the mortgage, but you will need to tell your mortgage provided that you no longer want PMI.
Lodgers and mortgage insurance savings are pretty much the only ways to reduce your house payments without at least some form of refinancing. But the good news is that there are fall back options which allow you to save money with only minimal changes to your mortgage.
We’ve rounded them up below…
Change your Standard Variable Rate (SVR) to a fixed or tracker mortgage
Most mortgage providers have an introductory offer with a low interest rate to help them attract new customers. However, once the honeymoon period is over, you will be switched to an SVR mortgage, which is usually much more expensive than a tracker or fixed-rate mortgage.
To save money, approach your mortgage provider and discuss being moved to a more favourable product. They are keen to keep customers, so they may arrange a better deal to prevent you from going to another mortgage provider.
Extend the length of your loan.
You can approach your mortgage provider and ask for the term of the loan to be extended. This will effectively reduce your monthly payments.
For instance, if you have a mortgage of £100,000 repayable over 25 years, the repayments would be £501 per month*.
But if you extend the mortgage term to 30 years, then the repayments would be £449 per month – effectively reducing your repayments by £52 per month.
The downside is that the total you will have to pay over the full term will increase from £150,238, to £161,721.
Switch to an interest-only mortgage.
Using the same loan criteria as above, a £100,000 repayment mortgage over 25 years is £501* per month.
The same amount as an interest-only mortgage would be £292* per month, a reduction of £209* per month.
But you need to remember that an interest only mortgage does not reduce the capital amount owed, so you would need to put a sound financial plan in place to repay the entire amount at the end of the loan period.
A mortgage payment holiday could be an alternative
As a possible alternative to refinancing, Mortgage payment holidays are also available if it has been over 12 months since you took your mortgage out and you have not taken any additional borrowing in the last six months.
You are also able to request a payment holiday if you live in the property and it is your main home, you have not taken payment holidays for more than six months total and the amount you owe on your mortgage is less than 75% of the home’s value.
Be sure to take professional advice before agreeing to take a mortgage payment holiday. There are pitfalls to consider and possible alternatives to mull over before you decide whether deferring your mortgage payments is the right way to go.
*These figures are for demonstrative purposes only. Please contact your mortgage provider for information pertaining to your specific circumstances.