How to lower mortgage payments
Senior Content Writer
Quick insights
- Ways to lower your mortgage payment include refinancing, removing private mortgage insurance (PMI) when eligible, reducing escrow costs, recasting your loan and pursuing a loan modification during financial hardship.
- The amount you can lower your mortgage payment depends on your lender and various factors, like your interest rate, loan balance, home equity and escrow costs.
- To determine which option for lowering your monthly mortgage makes the most financial sense, compare the costs, eligibility requirements and potential long-term savings.
Lowering your mortgage payment may create breathing room in your monthly budget now but also save you money in the long term. Whether you’re a first-time homebuyer or already settling into your new home, strategic moves can make your payment feel manageable. From adjusting your loan terms to reducing costs, you may have more power than you think to shape what you pay each month.
How to lower your mortgage payment
Several strategies can help you reduce your monthly mortgage payment. The right one depends on your loan type, your financial goals and how much equity you have in your home.
Refinance your mortgage
Refinancing replaces your current mortgage loan with a new one. If current mortgage rates are lower than the rate on your existing loan, refinancing could lower your monthly payment. Extending your loan term could also lower your payment—for example, moving from a 15-year mortgage to a 30-year mortgage. Or, maybe you have 20 years left on a 30-year mortgage. Refinancing to a new 30-year mortgage (a longer term) could lower your payment.
Scenario: You have a 15-year fixed-rate mortgage with a payment that’s stretching your monthly budget, and interest rates have fallen since you purchased your home.
What you can do: Compare refinance terms among lenders that would extend your loan term, offer a lower mortgage rate or both.
Refinancing could reduce your monthly payment while aligning with your long-term financial goals. Keep in mind that a longer loan term often means you’ll pay more interest over the life of the loan.
Recast your mortgage
A mortgage recast lowers your monthly payment by applying a large lump sum toward your loan's principal. For example, if you receive a $20,000 bonus at work and put it toward your mortgage principal, you can ask your lender to recast the loan. They would recalculate your remaining payments based on the lower balance. Your interest rate and repayment term stay the same. Unlike refinancing, a recast doesn’t require a new loan, so you generally avoid closing costs—though your lender may charge a fee.
Scenario: You receive an influx of cash (work bonus, inheritance or proceeds from selling another property). You want to reduce your monthly payment without modifying your loan terms.
What you can do: Ask your loan provider whether they can recast the loan after you make a principal payment. Confirm any associated fees, requirements and the estimated impact on your monthly payment.
Eliminate PMI
Private mortgage insurance (PMI) is generally required on many conventional loans when your down payment is less than 20%. Once your loan balance reaches 78% of the original value of your home, lenders usually remove PMI from your monthly payment. You can also request removal early if you think your home value has increased enough to reach the required equity. You must meet the equity requirement and any other requirements your lender has to remove PMI.
Scenario: You’ve owned your home for several years, made regular mortgage payments and believe the value of your home has increased.
What you can do: Contact your mortgage lender to find out whether you’re eligible to remove PMI. They might require an appraisal to validate any home appreciation. If successful, removing PMI could lower your monthly mortgage payment.
Reduce escrowed costs
Your monthly mortgage payment may include a portion for an escrow account. This means part of your payment goes toward property taxes and/or homeowner’s insurance. If either increases, then your mortgage payment increases. You can check the escrow portion of your payment by reviewing your statement or contacting your lender. Consider shopping for new insurance, adjusting coverage or appealing your property’s assessed value.
Scenario: Your mortgage payment recently increased even though your interest rate stayed the same.
What you can do: Review your escrow statement to determine whether property taxes or homeowner’s insurance caused the increase. There may be opportunities to lower those costs by shopping around.
Loan modification
A loan modification changes the terms of your existing mortgage to make payments more affordable. Mortgage lenders may modify your interest rate, extend your repayment term or make other qualifying changes. In general, you may need to be experiencing long-term financial hardship and meet their eligibility requirements for loan modification. Contacting your lender to discuss your situation is a good first step.
Scenario: You’ve experienced job loss, reduced income or another financial hardship and are struggling to keep up with your mortgage payments.
What you can do: Contact your lender as soon as possible to discuss whether a loan modification or another mortgage assistance option is available.
Common mistakes to avoid
When trying to lower your mortgage payment, there are several potential pitfalls:
- Focusing only on the monthly payment amount without calculating the total interest paid over the life of the loan.
- Refinancing without crunching the numbers. You can compare closing costs to your expected monthly savings and calculate when you’ll break even.
- Assuming the lender will remove PMI before you’re actually eligible. You can confirm these requirements with your loan servicer.
- Overlooking an increase in property taxes or homeowner’s insurance as the reason your monthly payment or costs have increased.
- Waiting too long to contact your loan provider if you’re experiencing financial hardship and need help managing your monthly payment.
In summary
There isn’t a one-size-fits-all answer for how to lower your mortgage payments. Refinancing, recasting, removing PMI, reducing escrow costs or pursuing loan modification may help. The right fit depends on your current loan terms and personal circumstances. Comparing the options, costs and eligibility requirements can help you choose the strategy that best fits your financial goals.
