The value of outstanding mortgage debt in the U.S. in 2017 was nearly $15 trillion. That’s more than $45,000 for every man, woman, and child in the country.
Your home is the single most expensive item you will ever buy in your life. And most of us have to pay off our mortgage debt over decades.
But circumstances can often change, meaning that those monthly mortgage repayments are can become a serious burden. One way to try to alleviate some of that burden is by restructuring your mortgage.
Read on as we take a look at how you can save serious money by mortgage restructuring.
Restructure Your Payments
There are two ways to do this, depending on whether you want to save money in the long or short term.
If your lender will allow it, you can restructure your mortgage so that it is over a longer period. This means that your monthly repayments will reduce, saving you money in the short term. But the downside is that the total you pay overall will increase, as you are paying interest over a longer period of time.
If you want to save money in the long term, then you can restructure your payments so that you’re overpaying your monthly payment. In this way, you will pay your mortgage off sooner and be paying interest for a shorter period of time. The savings can easily be several thousand dollars.
Recast Your Mortgage
Another way to pay your mortgage off more quickly is by a process known as recasting.
This involves paying off a lump sum of your mortgage, usually $5,000 or more. Your mortgage is then recalculated, which means that your monthly payments will reduce. In addition, you will also make huge savings overall as the interest you will accrue will be significantly less than your previous mortgage.
There is a fee incurred for recasting your mortgage which usually amounts to a few hundred dollars. This is more than outweighed by the savings you will make. But recasting your mortgage does require you to have a large sum of money available.
Refinance Your Mortgage
If you want to change things up completely, you could consider refinancing.
Finding a different mortgage at a preferential rate can save you both on your monthly payments and the overall amount of interest you will pay. But this needs to be weighed up against the fees you may incur for leaving your current mortgage early. These can often be a significant percentage of your current loan amount.
You will also need to be approved for your new mortgage, which has become more challenging since the financial crisis.
Defer Your Payments
If you are really struggling to meet your monthly mortgage repayments currently, but believe you will be able to make up the shortfall in the future, then it might be worth trying to defer your payments.
Realistically, few mortgage providers will agree to this unless there is a clear reason why you need the deferment. You would need evidence that you will be able to return to the normal schedule within a reasonable timeframe and make up the shortfall you will have accrued.
The likelihood is that in most cases you are unlikely to be successful. But it may be possible as it means that the lender will still end up receiving all the money they are owed, which is not always the case in foreclosure sales.
This is a really simple trick that sounds like it shouldn’t work but can end up saving you tens of thousands of dollars.
Instead of monthly mortgage repayments, you pay half the amount every two weeks. At first glance, this seems like you will just end up paying the same amount over the course of the year. But since every month but February is actually longer than four weeks, you actually end up paying off more.
52 weeks of bi-weekly payments equate to 13 monthly payments instead of 12. And whilst this doesn’t sound like much, the savings can be huge.
For example, for a $300,000 mortgage at 5% over 30 years, your monthly repayments would be $1,610.46, and the total you would repay over the whole term would be $579,767.35. If you paid $805.23 bi-weekly, you would finish paying off your loan nearly 5 years sooner. Your total repayment would be $528,275.45, which is a saving of an enormous $51,491.90.
Not all lenders allow bi-weekly payments, however, so you will need to discuss this option with your mortgage provider.
Extend the Term
If your current repayments are becoming difficult to manage, one option is to extend the length of your mortgage.
By paying off your mortgage over a longer period, it means that your monthly payments will be reduced, making them easier to manage. But the downside of this is that you will be paying interest over a longer period, so the total that you end up paying will increase.
The length of time that you can extend your mortgage will also depend on a number of factors. These include your age and how many more years you are likely to be working.
Switch to Interest Only
Another way to reduce the size of your monthly repayments is to switch to an interest-only mortgage.
Under this type of agreement, you are only paying down the interest each month, which makes your repayments far more easy to manage. There is a serious concern with this type of mortgage, however. Since you are paying down none of the principal amounts that you borrowed, you still owe the full amount of your loan. This will still have to be paid off at some point.
Unless you are expecting a sudden windfall, you will need to start saving to pay off the loan at some point in the future.
What Are Your Options Outside of Mortgage Restructuring?
If mortgage restructuring isn’t going to work for you then there are other options.
If the repayments on your home are becoming burdensome, one option is to consider a short sale. Our site is packed with useful information on everything you need to know about short sales, whether you’re selling or looking to invest.
We also have plenty of useful articles on real estate financing too. Feel free to take a look around.