You have to analyze, what exactly your period payment consists of. The two biggest parts are the principal and the interest. In the early years they will very likely be accompanied by PMI. Under other circumstances unchanged, reducing any of these three components will result is a lower monthly payment.

First of all, PMI has to be terminated as soon as the outstanding balance hits the 80% of the purchase (or recently appreciated) price of your property. If you are ready to wait that long, that is. Going down from, say, 90% to 80% can take over 10-years! Terminating the insurance is not an easy business either, but when you do manage to get rid of it, you will immediately feel the difference. Read about the troubles and tribulations involved in my special article.

The amount paid towards the interest is a percentage of the outstanding balance (the principal). The lower the balance, the lower the interest payments. If your mortgage carries no principal prepayment penalties (any more), the most effective way to reduce the balance faster is extra payments. Yes, they may cause you some temporal inconvenience, but they do pay off. Simply calculate how much you can afford to invest into an extra payment (one or several) without depriving yourself of too many joys of life, and see how much it will reduce your monthly financial burden.

Cutting the principal part of the monthly payments down is not really recommended as it will slow down the process of the mortgage debt repayment. If you are desperate, you can try to refinance into an interest-only mortgage (your monthly payment will include no principal part at all for a certain period of time) or into a longer-term mortgage. Say, you have 10 years left on your current mortgage and you refinance for the same outstanding amount into a 30-year mortgage. The same sum gets stretched over a longer period of time and thus each monthly payment is lower. However, all other conditions of the new mortgage have to be favorable. This way also requires some cash, for refinancing is not cheap.

 Why do people refinance? All for different reasons, of course, but the most common ones are:

• To obtain a lower interest rate,
• To build the equity of their property faster,
• To change the type of their loan,
• To take advantage of an improved credit rating,
• To get some cash out of the equity already built in the home.

How does it work?

Obtaining a lower interest rate is probably the most popular reason to refinance. One may have an adjustable rate mortgage with a rate gone too high, or a high-rate mortgage resulting from negative points, or an above-the-average rate caused by the poor credit score at the time of the loan origination, or it may have been a very sensible loan all the way until mortgage market interest rates dropped. Refinancing in such and such like situations can save you quite some money, but you have to be very thorough in estimating the benefit. The main question is whether the amount saved will be worth the amount paid. The procedure of refinancing is not cheap, so you have to make sure, that the money you pay for it will not only return to you, but also gain you some profit as savings on the interest, as compared with your current loan.

One of the decisive factors is Read the rest of this article »

Piggyback mortgages were quite popular before the year of 2007 as a tax deductible alternative for conventional PMI premiums. 2007 broke this subtle balance as Congress made PMI premiums tax deductible, too, but for that one year only. Being limited to certain restrictions and so far unpredictable future, PMI still leaves some room for the piggyback to kick and prove its worth.

First, let me explain how the Piggyback Mortgage option works. If a homebuyer needs to borrow more then 80% of the property’s purchase price, he either goes for one conventional mortgage and pays Private Mortgage Insurance (PMI) premiums, or tries to avoid it by opting for either Lender-Paid Mortgage Insurance (LPMI) or a Piggyback Mortgage, also known as 80/20. Actually, “80/20″ explains a lot by itself: the mortgage is, in fact, a combination of a primary mortgage for 80% of the purchase price and a secondary mortgage for an amount required to fill up after the down payment. The more comprehensive names for this mortgage sometimes are 80/10/10, or 80/15/5, or 80/5/15, indicating the details of the secondary mortgage - 10% borrowed/10% own down payment, 15% borrowed/5% own down payment, 5% borrowed/15% own down payment, respectively. Read the rest of this article »