Can I lower my mortgage payment?
If you’re wondering how to lower your mortgage payment, especially when it feels burdensome on a tight monthly budget, there are several strategies you can consider.
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.Check your options for a lower rate. Start here
In this article (Skip to...)
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 payment — with or without a refinance.
1. Refinance with 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.
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.
Anyone paying an interest rate above today’s market rate should check their eligibility for a mortgage refi.Check your refinance eligibility. Start here
2. Get rid of 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.
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.”
Eliminating PMI doesn’t always mean you need to refinance. When you achieve 20% equity in your home, you can request your lender to remove PMI. Here are some important points to remember about getting rid of 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 loan’s duration. However, if you opt for a new mortgage by refinancing into a conventional loan, and have at least 20% equity, you can avoid both MIP and PMI, leading to 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.Check your PMI removal eligibility with a lender. Start here
3. 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 your 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.Check your refinance options. Start here
4. 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 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 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.
6. 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.
7. 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.
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.
8. 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.
9. Use a Streamline Refinance
Another 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.Check your Streamline Refinance options. Start here
10. 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.
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.
“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.
Khari 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.
FAQ: How to lower your mortgage paymentCheck your refinance eligibility. Start here
To understand how to lower your mortgage payment without refinancing, 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 revolves around understanding your options and making informed decisions. Whether through refinancing, negotiating terms, or working with your lender, there are various strategies to lower your mortgage payment.
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.Time to make a move? Let us find the right mortgage for you