Saving money on your home mortgage is simple. Whether you want to save money over the entire term of the home mortgage or drop your monthly payments, mortgages offer several ways to make your life easier.
The first decision you have to make is, do you want to reduce your total payment or your monthly payment? These two numbers are opposed. Interest compounds, so reducing the total amount means cutting into the principal with larger monthly payments, and dropping your monthly payment means paying off the principal more slowly and putting more money toward interest payments.
If you want a lower total payment, the solution is easy: Pay a little more each month. The extra money goes to pay off a little more of your principal, which slightly drops the amount of interest you pay next month, which means your next payment bites into your principal that much more deeply... and around and around, until within a few years you are paying markedly less interest than you were before. Adding just $100 a month to the mortgage payments for a $200,000 home mortgage with a 30 year term can strip nine years off the duration of the loan and save you over $72,000 in interest payments. If you cannot add money every month, add it when you can, or make one large extra payment a year. The impact on the amount you pay over the life of your loan will be powerful.
You do not need permission from your lender to pay extra on your home mortgage. However, if you want to drop your monthly payment, you will need your lenders help to refinance. When you refinance, your goal is a lower interest rate (at least two points lower than your current rate, and ideally much lower), and probably a longer term. Be cautious about lengthening the term of your home mortgage. Because of interest compounding, adding time to the term will not decrease the monthly payment proportionately. If you refinance to a $100,000 home mortgage with a 15 year term at a 5% interest rate, your monthly payment will be $788. Increasing the term to 30 years decreases the monthly payment by only $252 and more than doubles the total amount of interest you will pay. If your family is going through a financial rough spot, then that $252 may create enough wiggle room in your budget to see you through, and may even make it possible for you to keep your house. However, once the rough patch is over, you should consider paying extra each month to reduce the total amount you will spend on your mortgage.
Spending less on your home mortgage is simple, but it requires a tradeoff. If you want to save in the long term, you must spend in the present, and vice versa. Decide which is best for your family, and be aware of the drawbacks as well as the benefits when you choose how to manage your home mortgage.