Can I lower my mortgage payment?
A high mortgage payment can feel like a burden, especially if your monthly budget is already tight. Luckily, there are plenty of ways to reduce your monthly mortgage payment.
The simplest way to lower your mortgage payment is with a refinance. But it’s not the only way. Even if rates are high and a refi doesn’t make sense, there are other strategies you can explore to drop your payment and save money. Here’s what to do.
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How to lower your mortgage payment
If you’re looking for some wiggle room in your budget, learning how to lower your mortgage payment may free up money for other financial needs.
A mortgage refinance is often the most direct way to reduce your payment amount, but it’s not your only option. Here are nine ways you can lower your monthly mortgage cost — with or without a refinance:
- Remove mortgage insurance
- Lower your interest rate with a refi
- Extend your loan term
- Switch from an ARM to an FRM
- Use a Streamline Refinance
- Recast your mortgage
- Ask about a forbearance plan
- Ask for a loan modification
- Lower your homeowner’s insurance rate
Let’s take a look at each option in a little more detail.
1. Cancel mortgage insurance premiums
Private mortgage insurance (PMI) or FHA mortgage insurance premium (MIP) can add a lot to your monthly payment. Dropping this extra charge could save many homeowners over $100 per month. And it may be easier to remove PMI now thanks to big equity gains in recent years.
“Canceling mortgage insurance premiums is perhaps the most likely way to lower your total monthly payment in the current market.”
–Jon Meyer, The Mortgage Reports loan expert and licensed MLO
“If you are paying private mortgage insurance (PMI), likely because you put less than 20% toward your down payment, you may be able to eliminate PMI by requesting an appraisal on your home,” says Andrea Woroch, a California-based finance expert. She adds that “If your home value has jumped significantly since you first purchased it, that may be enough to qualify for PMI removal.”
In addition, FHA home buyers are required to pay mortgage insurance premiums (MIP) for the life of their loans. The only way to get rid of MIP is to refinance from an FHA loan into another mortgage product, like a conventional loan.
“Canceling mortgage insurance premiums is perhaps the most likely way to lower your total monthly payment in the current market,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “Although rates are up, so are values,” he adds.
2. Refinance to a lower interest rate
The primary reason homeowners refinance is to lower their mortgage interest rate. This subsequently lowers your monthly mortgage payments — but that’s not all. It can also save you thousands (or tens of thousands) over the full life of the loan. However, your ability to save money on interest requires you to qualify for a new rate that is lower than your current rate.
In a rising-rate market, refinancing to a lower rate won’t be an option for many homeowners. But that’s not true for everyone. If you had a low credit score when you bought your home, for instance, but it’s improved since then, you might qualify for a lower interest rate today.
Anyone paying an interest rate above today’s market rate should check their eligibility for a mortgage refi.
3. Refinance to extend your loan term
Another option is to refinance your current mortgage into a new loan with a longer term. Your loan term is the amount of time you have to pay off your loan. This can lower your monthly mortgage payment by spreading the remaining loan amount over a longer repayment period. And it may work even if you new rate is a little higher than your old rate.
For example, if you have 20 years left on a 30-year mortgage for $300,000 at 6% interest, then your payments are around $1,800 every month.
Since you’ve been paying down the mortgage for 10 years, the balance is around $250,000. By refinancing into a new 30-year loan, still near the same rate, then your new monthly payment would be around $1,500. In this case, a refinance would save about $300 each month.
Just note, you could end up paying more in total interest. But if your main goal is a lower monthly mortgage payment, that might not matter.
4. Refinance to a fixed-rate mortgage
Perhaps your current loan is an adjustable-rate mortgage (ARM), which offers a fixed rate for the first few years with a variable interest rate thereafter. While your rate may go down, it can also spike up, leading to much higher monthly payments than you can comfortably afford.
But if you refinance to a new fixed-rate mortgage loan, you eliminate the uncertainty of variable rates and enjoy the security of regular monthly mortgage payments. You may be able to save more money over the life of your loan, depending on the new rate you qualify for.
Refinancing from an ARM to a fixed-rate loan might not yield huge monthly savings. But it does give you additional financial security because you won’t have to worry about your rate or payment increasing in the future.
5. Use a Streamline Refinance
A fourth choice is to consider a Streamline Refinance, available on many FHA, VA, and USDA home loans. With a Streamline Refinance, the lender is not obligated to re-check your income, credit, or employment. That means the loan can close much more quickly and possibly avoid a lot of paperwork.
What’s more, with a Streamline Refi, you can skip the home appraisal. That means you can refinance with little to no home equity accrued — and you may lock in a lower rate than you would with other types of low refinancing.
“With a Streamline Refinance, the lender is usually not allowed to add closing costs to the loan balance, and the interest rate and monthly payment must be lowered enough to make it worthwhile for the borrower,” says Eileen Derks, head of mortgages at Laurel Road.
“Essentially, a Streamline refi allows the borrower to obtain a lower rate and payment for very little cost and very little effort,” she explains.
6. Recast your mortgage
A mortgage recast involves applying a large lump sum payment to your loan principal and keeping the same maturity (payoff) date. A recast could help you lower your mortgage payment without refinancing — meaning you can keep your existing low mortgage rate in place.
“This alters the re-amortization schedule of your loan and, subsequently, reduces principal and interest due each month without having to refinance, making this a very low-cost and efficient option,” suggests Derks.
A mortgage recast might be an option if you’ve recently had a large windfall of cash — for instance, from an inheritance or a big bonus at work. If you’re interested in recasting your home loan, talk to your servicer (the company to which you make mortgage payments). They’ll be able to walk you through your options.
7. Temporarily pause your loan with forbearance
You may also be able to pause your loan via forbearance if you’ve experienced a temporary hardship and loss of income. Bear in mind that forbearance will not reduce your monthly mortgage payments long-term, but it can provide relief in the short term.
“While a forbearance will allow you to postpone payments on your mortgage, it does not allow you to skip the payments altogether,” says Cindy Laffey, branch partner and mortgage planner at Inlanta Mortgage in Pewaukee, WI.
Indeed, when the forbearance period ends, you’ll have to repay any missed-reduced payments or work with your provider on the most appropriate solution for repayment, according to your financial circumstances. “That’s why forbearance is not typically recommended, as it can prevent you from refinancing and impact your credit scores,” cautions Derks.
8. Ask about loan modification
Alternatively, you can explore loan modification, which can extend your loan’s term and/or lower your interest rate, if you qualify.
“Those are options that are sometimes granted by loan servicers to help borrowers avoid foreclosure and prevent losing their homes due to circumstances that may or may not have been under their control,” Laffey explains.
To be eligible, you’ll likely need to provide supporting documentation — including proof of hardship, evidence of income, bank statements, and more.
9. Lower your homeowner’s insurance premiums
It pays to review your homeowner’s insurance policy since you first bought your home or if it’s been a few years. “You could be overlooking one of the fastest and easiest ways to reduce your monthly mortgage payment, assuming you are paying it through escrow. That’s because insurance costs tend to go up every couple of years,” Woroch says.
If you learn that your policy premiums went up, contact your insurance company to learn whether you qualify for a lower premium or shop around for a cheaper policy.
Benefits of a lower monthly mortgage payment
“The main advantage of lower mortgage payment amount is that it allows additional household cash flow that can be used for several things,” says Laffey. She explains that saving on your mortgage can allow you to:
- Pay off other higher interest rate loans and credit cards faster
- Build a nest egg of savings for unexpected expenses and home repairs
- Increase savings for education and/or retirement
- Better managing increasing costs for property taxes and homeowners insurance
If you need some extra cash flow each month — for these reasons or any other — refinancing your mortgage could be a huge help.
Who qualifies for a refinance?
According to Khari Washington, mortgage broker and owner of 1st United Realty & Mortgage, the requirements for a mortgage refinance are similar to those for purchasing a home. Washington says mortgage lenders will look at:
- Debt-to-income ratio (DTI)
- Credit score
- Equity in your home
- Stability of your income
- Current value of your home
You should also understand the costs and benefits of a refinance to decide if it’s right for your situation. You will pay refinance closing costs, which are typically 2-5% of your loan amount.
Use a mortgage refinance calculator to compare your estimated closing costs with your monthly savings. If you’ll save more in the long run than you spend upfront, a refinance is typically worth it.
FAQ: How to lower your mortgage payment
There are several methods to lower your mortgage payment without refinancing, including recasting your mortgage, modifying your loan, requesting a forbearance plan, removing mortgage insurance premiums, and getting a lower rate on homeowners insurance. Not all options are available to all homeowners, but speak with your mortgage provider to see what they can do for you.
Speak with your loan provider before you get too far behind on your monthly payments. Mortgage lenders are more likely to work with borrowers who are still making on-time payments. Your provider may be able to enroll you in a mortgage modification or forbearance program.
As a rule of thumb, refinancing is worth the expense when it will ultimately save you money over the longer term, help you build equity, or own your home sooner. It can take a few years to break even on the closing costs, so a refi may not be optimal for those who plan on selling their homes soon.
What are today’s refinance rates?
Nationwide, average refinance rates are higher than the low rates available back in 2020 and 2021. But some homeowners may still benefit from a mortgage refinance. “I advise that you talk to a qualified mortgage planner or loan officer who can provide you with a mortgage plan that best meets your needs,” Laffey recommends.
Even if you’re not sure whether a refinance will work for you, it’s worth talking to a mortgage lender about your options.
