Managing Your Monthly Mortgage Payment

By Richard Barrington
Calculators for Mortgages Columnist

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When you first started shopping for a house and a mortgage, chances are you wentthrough some kind of budgeting exercise to determine how much you could afford.Starting with a monthly payment you could make, you may even have used a mortgagecalculatorto see how much of a loan this would translate to at prevailing interestrates.

What's Different When Refinancing?

It would make sense to go through a similar process if you are considering refinancing.People tend to think of refinancing only if they have an opportunity to reducetheir interest rate, but a refinance calculator can help you fine-tune the processa little more. A refinance calculator can help you tailor monthly payments tothe right size for your budget.

Using a Refinance Calculator to Test Your Budget

Like many Americans, you may find that after a few years, your mortgage paymentis not fitting your budget as well as it did at the start. Perhaps the interestrate on the mortgage has changed. Maybe it's your income that is different now,or your other financial obligations now that your family has grown.

In any case, imagine that you are starting over with your mortgage. Figureoutwhat kind of payment you could reliably make, anduse a refinancecalculator to test how much of your mortgage balance this monthly paymentwould finance at current interest rates and/or over differenttime periods.

Options for Fitting Your Mortgage into Your Budget

By using a refinance calculator in this way, you may find it possible to fityour mortgage back into your budget -- or at least, to make a new mortgage fit.Here are some possible ways to fit a new mortgage into your budget:

 
• Refinance at a lower interest rate. Mortgage rates have dropped, meaning    many homeowners have an opportunity to refinance at a lower rate. A refinance    calculator will show you how much this could save you.
 
• Refinance for a longer time period. If you've been paying down a thirty-year    mortgage for a few years, refinancing to a fresh thirty-year mortgage will    lower your payments by spreading your remaining balance over a longer period.    This costs money in the long run because you will be paying interest for    more years, but may be the best way to make your mortgage fit your budget.
 
• Switch to a fixed-rate mortgage. If you want to make sure your monthly    payment stays within your budget, locking in today's relatively low interest    rates by refinancing to a fixed-rate mortgage is the way to do it.

When Increasing Payments Makes Sense:

On the other hand, if your income has grown considerably since you originatedyour mortgage, you might consider refinancing to a shorter period. You'll wantto make sure you can do this and still leave a financial cushion, but if youcan, this strategy should save you interest expense over thelife of the mortgage. Contactatrusted mortgage lender and see what you can save.



About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.