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How to Lower Your Monthly Payment

Feb. 18, 2014 - 08:34AM   |  
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That’s easy enough, right? If you currently have a VA home loan, you can take advantage of the VA streamline refinance to get a lower rate. That will lower your monthly payment, right? But what if rats aren’t lower than what you currently have or are lower but not really low enough to make a refinance worthwhile?

Or if you’re in the process of buying a property and using your VA home loan benefit to finance the home, what are some of the things you can do to keep your monthly payment as low as possible?

The Breakdown

Your VA mortgage payment you make or will make each month is contains at least three, sometimes four components. The principal and interest payment takes up by far the most of the amount sent to your VA lender.

Your payment also has an escrow account, used to pay the property taxes and insurance as they come due. Your property tax bill arrives once per year, twice in some areas. Each month as you make a payment, 1/12th of your annual tax bill goes to fund your tax escrow account. When the bill arrives, your lender pays your property taxes for you from the escrow fund you paid into.

The same process works for your homeowner’s insurance or your walls-in policy if the property is a condominium. And speaking of condominiums, there may also be a homeowner’s association payment made each month. The “HOA” payments are made directly to the property manager and not the lender.

Lowering the Principal and Interest Payment

If you’re refinancing, you lower the payment by replacing your existing VA home loan with a new one by taking advantage of the VA streamline refinance. The lower rate will lower your payment. But you can also lower your rate by paying points to reduce the monthly payment.

A point is expressed as a percentage of the loan amount and is a form of prepaid interest to the lender. I exchange for paying an upfront one percent of the loan amount, a lender can reduce your interest rate by approximately 0.25 percent. Every VA lender offers a range of interest rate choices for each program and you have the choice of paying points for a lower rate or not. It’s all up to you.

If your loan is an adjustable rate mortgage, you can lower an existing monthly payment by paying down the loan balance outside of the normal amortization process. With an ARM, as you pay extra, you’re reducing the payment, even if you keep the same rate. This is opposite from a fixed rate loan, where paying extra doesn’t reduce the monthly payment but shortens the loan term.

Lowering Your Taxes

When the local taxing authority sends out your property tax bill, there is an assessed value listed. In the taxing authority’s eyes, that’s how much your property is worth and is the value used to arrive at your property tax payment. Your monthly escrow payments are based upon this value.

But it’s highly unlikely that your property was physically appraised. No appraiser visited your home and inspected the exterior much less the interior of your home. You have the opportunity to protest your property assessment by presenting facts that will decrease your home’s assessed value. For example, say you live on a street with heavy traffic. Or you don’t have the views that your neighbors have or there were recent sales in the area that support a lower value.

When scheduling a property tax protest, be prepared to provide the taxing authority with the information needed to dispute the higher value. This information can be obtained from your real estate agent or a property appraiser. Lower tax bills will lower your monthly payment.

Insurance

Because you escrow for insurance, a lower insurance premium will lower your monthly payment. First, have a meeting with your insurance agent to discuss any pitfalls of adjusting your premium amount. You always want to make sure you’re covered when needed.

Can you combine your automobile and homeowner’s policy at the same agency? Perhaps you can increase your deductible to lower your premium? You can even get discounts on your insurance by installing smoke detectors and fire extinguishers. Did you have a dog but no longer? Sometimes pets increase a homeowner’s premium as well.

By examining your property taxes as well as insurance options, you may be able to reduce your monthly payment in addition to refinancing your loan or paying points for a lower rate. Hey, every little bit helps, right?

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