Are you looking for ways to cut your mortgage costs? Chances are, that question is rhetorical. Though the economy may be on the up-and-up, money is short these days and mortgage costs can be a huge burden for homeowners and their families. According to the U.S. Department of Labor, between the latter end of 2011 to the middle of 2012, American consumers spent anywhere from 32 to 38 percent of their income on housing. There is, however, some silver lining to this situation. We have for you a few refinancing techniques and saving strategies that helped specific homeowners get a lower interest rate and ultimately saved money on their mortgage.

Here is how these homeowners cut their high mortgage costs:

Savings Strategy #1: Switching to a Shorter-Term Loan

How would you like to pay refinancing costs and increase your monthly mortgage payment to save money? Sounds crazy, right?

The truth is that doing just that may actually help cut your mortgage costs in the long run. That is exactly what Chris, the thirty-something Madison, Wis. founder of the personal finance blog,, discovered when he refinanced his own mortgage.

The original amount that Chris took out for his mortgage was $180,000, with a 30-year term and an interest rate of 5.63 percent. When he went to refinance, he took out the new loan for $160,000, and switched to a 15-year loan with an interest rate of 3.25 percent.

Though his refinancing costs were approximately $1,000, when he calculated how much he’d save by going to a lower rate, Chris found it was worth it. In fact, within seven months, he was able to recoup the costs of refinancing.

And even though his monthly payment increased, the significantly lower interest rate on the 15-year loan didn’t cause his monthly payment didn’t change by much.

Savings Strategy #2: Using HARP to Refinance an Underwater Mortgage

Is your current mortgage owned or guaranteed by Freddie Mac or Fannie Mae, or insured through the FHA?

For Freddie Mac and Fannie Mae mortgages, as long as your payments are up-to-date and the value of your mortgage is more than 80 percent of the current value of your home, you may qualify to refinance to a lower rate under the Home Affordable Refinance Program (HARP), says the program’s official website.

John and Carol, an Oakland, California couple in their forties, were recently able to take advantage of this program. John works in construction and Carol works for a large telecommunications company, and they’ve lived in the same three-bedroom home for over 20 years. The original loan they took out on their home was for $260,000.

Joe Parsons, owner/manager of PFS Funding, a small mortgage banker in Dublin, California, has worked with John and Carol for over 15 years.

“Because of the decline in real estate values, [John and Carol’s] loan balance is quite a lot higher than the value of their home,” says Parsons. “They had resigned themselves to their high rate of 6.875 percent and the payment of nearly $1,800.”

Luckily, John and Carol qualified under the HARP program to cut their mortgage costs significantly. Their new loan, which was for $266,000, was approved with minimal paperwork, and their rate dropped nearly three full percentage points to 4.125 percent. Their monthly payment dropped from $1,800 per month to $1,536 – a savings of over $300 per month, says Parsons.

“Under the latest iteration of HARP, John and Carol were able to refinance without regard to the appraised value of their home – in fact, an appraisal was not necessary at all.”

Savings Strategy #3: Using an FHA program to get a Better Interest Rate

While HARP helps many underwater homeowners, it isn’t the only government program homeowners can take advantage of. Homeowners with up-to-date Federal Housing Administration (FHA) insured mortgages may also qualify to refinance to a lower rate through what’s called a Streamline Refinance. This is what Mike and Christine, a San Francisco couple in their 30s did, and they saved big bucks in the process.

Mike and Christine bought their new home about four years ago with a loan amount of $688,000, using an FHA loan and a 3.5 percent down payment, says Parsons. At the time they got an interest rate of 5.75 percent, and their monthly payments including taxes, insurance, and mortgage insurance, was $5,485 per month.

“Mortgage insurance at that time was .55 percent,” Parsons says, “and it has risen since then.”

Mike, who works in mid-management for a high-tech company, and Christine, who is a new mother, qualified for an FHA streamline refinance under a recently-enacted program so their mortgage insurance premium would remain at the low rate they had initially, Parsons explains.

“Their new loan was at 3.75 percent. Because of the large drop in the [interest] rate, together with the size of the loan ($684,500), their payment dropped dramatically – from $5,485 to $4,380. That was a drop of over $1,000 per month.”


If you are experiencing issues and troubles as these three homeowners did, feel free to contact On Q Financial, Inc. to talk about applying these strategies to your own circumstances. We’ll help you with all your refinancing needs today!