How To Lower Your Mortgage Payment: 8 Ways To Consider

For most people, their mortgage payment is their single largest monthly expense. And when you’re on a tight budget, that payment can create a significant financial strain. Even if you can easily afford your loan payment, you may want to make room in your budget for other expenses.

While your mortgage payment is generally considered a fixed expense, there are ways to lower it, some of which are more complex than others. Some of these strategies can be done after you already have your mortgage, while others must be done beforehand.

No matter your reasoning for wanting to lower your mortgage payment, keep reading to learn the best ways to do so.

How To Get A Lower Monthly Mortgage Payment

Whether you can’t afford your mortgage payments as they are or you simply want to clear up some room in your budget, here are some strategies to consider.

1. Set Yourself Up At Closing

There are several steps you can take to lower your mortgage payment before you’ve even closed on your loan. The following sections will outline the various ways to lower your mortgage payment during the closing process.

Make A Larger Down Payment

Your down payment has a major impact on your mortgage payment. The more you can pay upfront, the smaller your loan and, therefore, the smaller your monthly payment. It may take longer to buy a home with a larger down payment, but the lower mortgage payment can make it well worth the wait.

Improve Your Credit Score

An effective way to lower your future mortgage payment is to improve your credit score. Your credit score is one of the most important factors lenders consider when setting your interest rate. A good or excellent credit score can help you qualify for a good interest rate, which, in turn, can lower your mortgage payment.

Choose The Right Mortgage

There are several different types of mortgages, and the one you choose will significantly impact your mortgage payment. First, compare the payment difference between adjustable-rate mortgages and fixed-rate home loans. An adjustable-rate loan might offer a lower interest rate and monthly payment. However, the adjustable rate could cause your payments to increase in the future. Meanwhile, a fixed-rate loan would ensure your payment can’t increase.

You can also weigh the differences between a 30-year and a 15-year mortgage. A 15-year mortgage offers the lowest interest rate and the fastest path to debt freedom. However, a 30-year loan offers a considerably lower interest rate, which is part of what makes it so popular.

2. Refinance Your Existing Mortgage

If you already have a mortgage, you can lower your payment by refinancing your loan. There are a couple of different ways that refinancing can help you lower your mortgage payment.

Get A Longer Repayment Term

First, refinancing your mortgage payment can help you get a longer repayment term. Because you’re spreading your loan out over a longer period, your payments will be lower. For example, suppose you have 20 years left on your 30-year loan. By refinancing and taking out a new 30-year loan, you’ll be able to pay less each month.

Secure A Lower Interest Rate

Another way that refinancing your loan can help you lower your mortgage payment is by helping you land a lower interest rate. You may be eligible for a lower interest rate if your credit has improved or if the market interest rate has decreased.

If you can lower your interest rate, you can save a lot of money on your mortgage. But it’s important to note that depending on when you got your original loan, you may not be able to get a lower interest rate. For example, if you bought your home in 2020 when rates were historically low, you almost certainly won’t be able to qualify for a lower rate today.

3. Remove Your Private Mortgage Insurance

You can lower your mortgage payment by removing private mortgage insurance (PMI). PMI can generally be removed from your loan in two different ways.

First, if you don’t take any action, PMI will automatically be removed when you’re scheduled to reach 22% equity based on your original home value. You can also request to have PMI removed once you reach 20% equity in your home. However, this route might require that you pay for an appraisal.

4. Look For A New Homeowners Insurance Policy

In most cases, your homeowner's insurance policy is a part of your monthly mortgage payment. That portion of your payment goes into an escrow account to pay for your policy. You can lower your payment by shopping around for coverage and purchasing a more affordable homeowners insurance policy.

When you’re shopping around for coverage, consider working with a broker who can help you compare multiple carriers or get quotes from multiple companies yourself. Just make sure you have sufficient coverage under your new policy – a little monthly savings isn’t worth major potential losses down the road.

5. Recast Your Mortgage

A mortgage recast allows you to lower your loan payment without having to refinance. Instead of refinancing, you make a large lump-sum payment, and your lender then reamortizes your loan. In other words, they recalculate your payments based on your new mortgage balance but with your current interest rate and term.

A mortgage recast does require a large upfront payment. However, it then lowers your payment for the remainder of your loan term. And because you’ve lowered your loan balance, you also reduce the amount of interest you ultimately pay.

6. Dispute Your Property Taxes

In most cases, your lender will collect your property taxes each month and then pay your property tax bill each year. If your property tax bill goes up, so does your mortgage payment.

Most local governments have a mechanism in place that allows you to dispute your property tax assessment if you disagree with it. If you’re successful, you can lower your property tax bill – and your mortgage payment, as a result – or prevent it from increasing. However, there’s no guarantee you’ll be successful.

7. Rent Out A Room

If you need extra cash each month, consider renting out a room in your home. While this won’t technically lower your mortgage payment, it will help offset some of it by using the monthly rent payment to help pay your mortgage.

It’s important to note that this strategy has some tax implications. The rent you collect from any tenants or roommates counts as income, meaning you’ll have to report it on your income tax return and pay income taxes on it.

8. Apply For Forbearance

If you need temporary mortgage relief, forbearance can help you do that. Forbearance allows you to either pause or reduce your mortgage payments, but only for a short time.

If you’re facing a temporary financial hardship, a forbearance can help you get back on your feet. However, if your payments have become unaffordable, then forbearance may not be enough to solve your problem.

It’s also important to note that you’ll still owe your entire loan balance, along with interest. You’ll have to continue making payments until the loan is paid off, even after your original loan term ends.

The Bottom Line

If your mortgage payments are putting a strain on your budget, you have several options. There are several effective ways to reduce your mortgage payment, including making certain decisions before closing on your loan, refinancing your loan and more.

Refinancing your loan can help you lower your mortgage payment by reducing your interest rate or extending your payment term. If you’re considering this option, apply for a refinance to see if it’s an option for you.