How to Save on Your Mortgage Payments in 2013

Wise Bread

For most homeowners, a mortgage payment accounts for about 30 percent of their monthly income. If you're determined to stick with your budget this year, take time to trim some of those housing expenses. You can free up some extra cash each month by reducing your monthly mortgage payment and then reconfigure your budget to better manage your household's monthly expenses.

Consider these strategies:

1. Make a large lump sum payment to pay down your mortgage. If you're expecting a sizeable tax refund this year or are enjoying a financial windfall, use that money to make a larger mortgage payment; just one big payment towards the principal could reduce your monthly payments for the rest of the year. It's a simple way to free up some extra cash and reduce that debt load fast.

2. Be careful about bi-weekly payment options. Making bi-weekly payments instead of monthly can help you save money by paying down the mortgage faster, but your lender might charge you an upfront fee for the option. Make sure you're factoring in this fee if you decide to switch from bi-weekly to monthly payments.

3. Shop around for better rates. Talk to your lender about refinancing options or shop around to find a loan that might be a better match for you. Just remember even with a lower rate, you could end up paying fees that cancel out any real savings you would enjoy over the course of the year. Make sure you factor in any fees associated with making changes to your original loan, and be prepared to negotiate.

If you have a high credit score, a solid credit history, and a positive track record for making payments on time, you're in a better position to negotiate a lower rate or any type of change to your loan terms. Remember lenders want to keep your business, so you may even be in a position to bank somewhere else if you're not completely satisfied with your current lender's offer.

4. Extend the life of the loan. Extending the loan term will reduce your monthly payment but you will be paying more in interest over the life of the loan. If you just want to free up some cash now and are comfortable with this type of arrangement, talk to your lender about changing the terms of your loan. You may be able to refinance to extend the life of the loan and in turn reduce your monthly mortgage payments for the entire year. If you decide to make your regular payment at some point, you will end up paying down your mortgage faster.

5. Say goodbye to private mortgage insurance. If you paid for private mortgage insurance (PMI) when you signed your loan agreement and your mortgage balance falls below 80 percent of the home's appraised value, you can ask your lender to cancel out your PMI. You might need to pay for an appraisal to find out what the current value of your home is, but you would be saving a little every month by getting rid of the PMI cost.

6. Ask your lender about the Home Affordable Modification Program (HAMP). If you're struggling to make your mortgage payments because of your current financial situation, you may be eligible for the Home Affordable Modification Program (HAMP). You will need to demonstrate financial hardship and meet certain eligibility criteria, but a lender may be able to modify your payment schedule so you can keep your budget on track.

7. See if you qualify for the Principal Reduction Alternative (PRA) program. If your home is worth less than your current mortgage, you may be eligible for the Making Home Affordable's Principal Reduction Alternative program. You could be eligible for PRA if your mortgage payments are more than 31 percent of your pre-tax monthly income and if you might be in danger of falling behind on your mortgage payment. Talk to your lender to find out if you are eligible for this program and you could save some money on mortgage costs each month.

Find 7 secrets to refinancing an underwater mortgage and other real estate finance tips from Sabah Karimi at WiseBread.com.