Key Takeaways
- Homeowners can lower payments through refinancing, insurance savings, tax appeals, or mortgage recasting.
- Refinancing often offers the fastest path to a lower mortgage payment, especially when rates drop.
- Removing PMI or FHA MIP can cut your monthly payment by $100+ in some cases.
- If you need immediate relief, ask about hardship options, but treat them as temporary fixes.
If you’re wondering how to lower your mortgage payment, especially when it feels burdensome on a tight monthly budget, the good news is that there are several strategies available to you.
The simplest way to lower your mortgage payment is with a refinance, especially with rates dropping. But it’s not the only option. Even if refinancing doesn’t make sense for your situation, there are other ways to lower your monthly mortgage payment that can help you save money.
You can take action to reduce your payment, and 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 seven ways you can lower your monthly mortgage payment.
Check your refinance eligibility. Start here1. Refinance with a lower interest rate
The primary reason homeowners refinance is to reduce their mortgage interest rate, which lowers monthly payments and can save thousands over the life of the loan. With rates gradually declining over the past few months, now may be a great time to check your eligibility for a refinance. You’ll need to qualify for a new rate that is lower than your current one.
If a lower interest rate is not immediately available, you can acquire one by buying mortgage discount points. These points, which represent prepaid interest, each amount to 1% of the principal balance and reduce your interest rate by 0.25%. The cost for these points is paid upfront at the time of closing the loan.
Here are some ways to lower monthly mortgage payment through a refinance:
- Refinance to a fixed-rate mortgage: If you currently have an adjustable-rate mortgage (ARM), refinancing to a fixed-rate mortgage can eliminate the uncertainty of fluctuating payments. While the monthly savings may not be substantial, you’ll gain financial security with consistent monthly payments and protection from future rate increases.
- Use a Streamline Refinance: Another option is a Streamline Refinance, available for many FHA, VA, and USDA loans. This type of refinance typically allows lenders to forgo re-checking income, credit, or employment, resulting in a quicker closing process with less paperwork. Additionally, you can often skip the home appraisal, enabling refinancing even with little or no home equity.
2. Get rid of mortgage insurance premiums
Private mortgage insurance (PMI) or FHA mortgage insurance premium (MIP) can significantly increase your monthly payment. Removing this extra charge could save many homeowners over $100 each month. It might also be easier to eliminate PMI now due to substantial equity gains in recent years. Canceling mortgage insurance premiums is likely the most effective way to lower your overall monthly payment.
Getting rid of private mortgage insurance
“If you are paying private mortgage insurance, 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.”
Removing PMI doesn’t always require refinancing. Once you build 20% equity in your home, you can ask your lender to eliminate PMI. Here are some key points to keep in mind about removing PMI:
- If reaching 20% equity results from an increase in your home’s value or through making extra payments, your lender is likely to ask for a property appraisal.
- In cases where you reach 20% equity through your normal payment plan, without any extra payments, your lender typically does not ask for an appraisal.
- Your lender is obligated to automatically cancel PMI from your loan once you attain 22% equity based on your standard payment schedule.
Read our private mortgage insurance guide to learn more about how you can cancel PMI.
Getting rid of FHA mortgage insurance premiums
The only way to get rid of MIP is to refinance from an FHA loan into another type of mortgage or pay off the loan entirely.
For FHA loans underwritten after June 1, 2013, with less than 10% down, you’re required to pay a monthly mortgage insurance premium (MIP) for the life of the loan. However, if you refinance into a conventional loan with at least 20% equity, you can avoid both MIP and PMI, resulting in a lower monthly payment.
“Canceling mortgage insurance premiums is perhaps the most likely way to lower your total monthly payment in the current market,” said loan officer Jon Meyer. “Although rates are up, so are values,” he adds.
3. Extend your loan term
Another option is to refinance your existing 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 reduce your monthly mortgage payment by spreading the remaining balance over a longer repayment period. It might also work even if your new interest rate is slightly higher than your current rate.
For example, if you have 20 years remaining on a 30-year mortgage of $300,000 at 6% interest, your monthly payments are approximately $1,800.
Since you’ve been paying down the mortgage for 10 years, the balance is around $250,000. Refinancing into a new 30-year loan at nearly the same rate would result in a new monthly payment of about $1,500. In this case, refinancing could save you approximately $300 each month.
While this approach might result in paying more total interest over the loan’s duration, it can offer immediate relief for your budget.
Alternatively, you can explore loan modification, which may extend your loan term or lower your interest rate if you qualify. Loan servicers sometimes grant these options to help borrowers avoid foreclosure due to circumstances beyond their control.
To qualify, you will probably need to submit documentation such as proof of hardship, income verification, and bank statements.
Check your refinance options. Start here4. Lower your homeowner’s insurance premiums
Reviewing your homeowner’s insurance policy is essential if you’re exploring how to lower your mortgage payment. It’s worth checking since it’s been a while since you first bought your home. You may be eligible for discounts through promotions, memberships, removing unnecessary coverage, or raising your deductibles.
“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.
5. 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 while keeping 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’re looking for ways to lower your monthly mortgage payment and have 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.
6. Appeal your property taxes
When you have an escrow account linked with your mortgage, it typically includes a portion for your property taxes in the monthly payments. If you’re wondering how to lower your mortgage payment, reviewing your property taxes is a great start.
The amount you pay in property taxes is determined by your local county’s tax assessment of your property. This assessment involves a thorough evaluation of your home and land to establish their market value. A higher assessment by the assessor could lead to higher taxes than necessary.
To check the assessed value of your property, you can either examine your tax bill or visit the website of your local county recording office. If you believe that your property’s assessed value is excessive, you have the option to challenge this assessment. When doing so, it’s advisable to come equipped with evidence such as a list of comparable real estate properties that have been sold recently, or an appraisal report if available. Successfully lowering the assessed value can result in reduced property taxes, which may also lower your monthly mortgage payment.
Check your refinance eligibility. Start here7. 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.
If you’re looking for ways to lower your monthly mortgage payment during difficult times, exploring this option could give you the breathing room you need to manage your finances.
Benefits of a lower monthly mortgage payment
Understanding how to lower your mortgage payment can lead to significant financial benefits. A lower monthly payment not only eases your budgetary constraints but also allows for better cash flow management and increased savings opportunities.
Check your refinance eligibility. Start here“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?
When exploring how to lower your mortgage payment, it’s important to understand how to qualify for a mortgage refinance. Eligibility for refinancing typically depends on factors like credit score, home equity, and current financial standing.
Check your refinance eligibility. Start hereKhari Washington, a mortgage broker and owner of 1st United Realty & Mortgage, notes that if you’re looking into how to lower your mortgage payment through refinancing, the requirements are similar to those for purchasing a home. Washington points out that mortgage lenders will evaluate:
- 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.
FAQs about how to lower your mortgage payment
Check your refinance eligibility. Start hereTo lower your mortgage payment, consider various methods like recasting your mortgage, modifying your loan, applying for a forbearance plan, removing mortgage insurance premiums, or securing a lower rate on homeowners insurance. While not all homeowners may qualify for these options, consulting with your mortgage provider can reveal the best solutions for your situation.
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 might take a few years to offset the closing costs, making it less suitable for those planning to sell their homes soon, but for others, refinancing is a viable strategy in understanding how to lower your mortgage payment.
Bottom line about how to lower your mortgage payment
Lowering your mortgage payment depends on understanding your options and making informed decisions. Whether through refinancing, negotiating terms, or working with your lender, there are several ways to lower your monthly mortgage payment.
With the recent gradual decrease in rates, some homeowners might benefit from refinancing their mortgage. “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 unsure whether a refinance will work for you, it’s worth talking to a mortgage lender about your options.
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