Finance savy people pls help-Mortgage Ques

[bnme]

DH and I have a lump sum of $ that is equal to about 1/2 of our exisitng mortgage balance. Is it at all possible to put money towards an existing mortgage, with the purpose of lowering your monthly payment, without doing a refinance? We have a low rate that we don't want to lose. Also, if that is not possible how do I figure out whether or not it's worth it to refinance at a higher rate but with a lower principal?

Our main goal is to lower our monthly payment because we are struggling to pay our mortgage now. I did not plan on being a SAHM so when we bought our house we figured we'd always have the 2 salaries. Luckily we are just skimming by but it's way to close for comfort and we have been dipping into savings now and then to pay of basic needs. I think I will be home at least another 5 years and then probably return only part time and at a lower salary then I was making. We will likely remain in this house at least the 5 years, and probably longer unless there is a signifigant increase in our income. We don't LOVE our house and would really prefer to use the money towards purchasing another, but it's really not an option now. So I guess that makes me a extra concerned about what we do with this money - meaning will it be a waste to put it towards this house if we end up moving in 5 years?

Any advice or resources appreciated! Thanks for reading this, it got kind of long.

ETA: DH's mom passed away earlier this year, thats why we have this money. We know we are "lucky" to have this money, which can help better our lives but it is mind boggling to figure out what to do with it. We want to spend it wisely.

[KrisM]

We had a similar situation a few years ago. When DH and I married, we both owned houses. I sold mine and got a decent amount of money from the sale. We knew we wanted to have that money for a future house. We ended up making a large lump sum payment towards DH's house (where we currently live), since the interest rate on the mortgage was higher than on any short-term savings. I say short-term, because we figured we'd want a new house within 5-7 years, so didn't want the money in the stock market or anything more risky.

Anyway, only the principle balance goes down, not your monthly payment, when you pay a lump sum like that. To figure out if it's better to refinance or not, you have to do the math. A spreadsheet should help.

Here is an example:
Amount owed: $100,000
Lump sum to pay: $ 50,000
Current interest rate: 5%
Refinance interest rate: 6%
Mortgage term: 30 years

Current monthly payment would be $536.82. If you instead paid the lump sum and refinanced, the monthly payment would be $299.78. So, if lowering your balance is the key, a refi might be the way to do it.

There are other things to consider in refinancing, but I don't know enough to talk about them. I am sure you could call a mortgage person and ask what you could get. I know rates are still pretty low, so your's might not increase too much.

[newmommy0403]

You won't be able to change your monthly payment without a refinance. You would just be lowering your principal and thus will pay your house off much sooner.

One thing you may want to consider is placing the lump sum of money into a money market account and use it to add to your mortgage payment. For example, if your mortgage pmt is $1000 and you want it to be $600, take $400 a month out of the money market account. At least the money will be earning a little bit of interest to offset the interest you are paying on the principal. Of course, interest rates on money markets are really low, like 2%, but, if you really don't want to refinance it's an option. I agree with the PP that a mortgage person could easily run the numbers for you so you could figure out your best option. I know my boss just told me yesterday that the 30 year fixed rates she was quoted on her new house were 5 3/8%- 5 3/4%. If your rate is anything in the 5's or above, you would probably do better in the long run to refinance.

HTH!
Becky

[steph2003]

Why not refinance it with a 5 year ARM/10 year ARM or something like that? I know it is hard to let go of the 30 year fixed rate mind set - at least for me it was. But then I came to realize we are not planning on staying in our current house longer then 10 years & if circumstances dictate that we do stay well, then we'll figure out what we want to do in 10 years!!! anyway, we finally refinanced even though we had a low locked in 30 year rate. Just something to consider...

[C99]

We refinanced with a 7-year ARM to lock in a lower interest rate and it lowered our monthly payments substantially (although thanks to rising taxes, it has crept back up more than I would like). For us, it was advantageous because we had a very high interest-only second mortgage/equity loan that we had gotten to avoid PMI.