How to lower your monthly mortgage payment
These strategies can save you money on housing
If your budget feels tight each month or you aren’t reaching your savings goals, a too-high mortgage payment might be to blame. Thankfully, there are ways to lower your monthly mortgage bill and free up some wiggle room in your finances.
Key insights
- Refinancing your home to a lower rate or longer term is the most common way to lower your monthly payment.
- Changing to biweekly mortgage payments can help you budget better and allow you to pay off your home faster.
- Finding a less expensive insurance company or choosing a higher deductible can save you on home insurance costs, which might be tied to your monthly bill.
Refinance your home
A popular way to lower your monthly mortgage payment is to refinance to a lower interest rate or longer term. This is especially helpful if you are switching from a 15-year mortgage to a 30-year mortgage or if you qualify for an interest rate that is 1% or more lower than your current rate. Refinancing is also helpful to get out of an adjustable-rate mortgage (ARM), which can be costly when rates go up.
Refinancing is technically getting a new home loan, so you will have to pay loan origination fees and appraisal fees. Your loan will also reset for the term at which you refinance it.
If you refinance to a better rate, you could save money over the life of your mortgage. However, refinancing at a similar rate and resetting to a 30-year term after owning your home for several years will lower your monthly bill but ultimately increase how much you pay for your overall mortgage.
» MORE: Refinance rates today
Get rid of PMI
Private mortgage insurance (PMI) protects lenders in case a borrower defaults on their mortgage payments. If you put a down payment that’s less than 20% on your new home, you will have PMI.
Since PMI can add a few hundred dollars to your monthly payment, it is best to remove PMI as soon as you have 20% equity in your home (your equity is how much you owe subtracted from the original purchase price or the appraised value at the time of purchase). Your lender will automatically drop your PMI once you reach 22% equity, but you can request cancellation once you hit the 20% mark.
If your home’s value has gone up with the market, you will need to refinance to remove the PMI since a new appraisal is required to prove you have enough equity.
Certain loans, such as Federal Housing Administration (FHA) loans, have different rules regarding PMI. For FHA loans, PMI remains for the life of the loan unless you refinance your FHA into a new loan type.
Consider biweekly mortgage payments
While switching to biweekly mortgage payments doesn’t necessarily lower your monthly payment, two payments can be easier to budget for rather than having a lump sum deducted from your account each month.
Biweekly payments also reduce the amount of interest you’ll pay overall, explained Ron Goforth, senior vice president and director of product development at PNC.
“Essentially by making biweekly payments, you’re making an extra payment each year, which is applied directly towards the principal of the loan,” said Goforth. “This reduces the amount of interest you’ll pay over the life of the loan, because the principal is being reduced faster. Another benefit is that since you’re reducing the principal more quickly, the mortgage should get paid off quicker.”
Review homeowners insurance and property taxes
Another way to save money is to evaluate how much you are paying for insurance premiums and property taxes.
Insurance premiums can vary significantly between insurance providers, so shop around for a new quote. You can also lower your insurance premiums by increasing your deductibles. A higher deductible means you'll have to pay more out of pocket in the event of a claim, but it can help in your month-to-month budgeting.
Ask your current insurance company if there are any steps you can take to reduce your insurance costs, such as adding home security features like a security system or deadbolt locks.
Property tax assessments are based on the value of your property and can sometimes be inaccurate or outdated. Review your property tax assessment to ensure it reflects the current market value of your home. If you believe the assessment is too high, you can file an appeal with the local tax assessor's office.
Some areas also offer property tax exemptions or discounts for senior citizens, veterans or those who have energy-efficient features in their homes.
Seek lender support or government assistance
If your mortgage payment is unmanageable, don’t wait to seek help. Here are a few ideas worth checking out to see if you qualify.
- Conventional loan modifications
- Loan modifications are a long-term relief option for borrowers who are experiencing financial hardship, either through job loss or illness. Lenders are willing to work with eligible borrowers because it is less costly and risky to modify your loan rather than have you face foreclosure.
A loan modification will not reduce the overall amount you owe on your home, but it can lower your monthly bill through a reduction of interest rate or stretching out the loan term.
- FHA loan modifications
- The Federal Housing Administration offers loan modification programs to eligible homeowners with FHA-insured mortgages. These programs aim to make monthly mortgage payments more affordable by adjusting the terms of the loan. Modifications may involve lowering the interest rate, extending the loan term or even reducing the principal balance in some cases.
- Direct help from your lender
- The Making Home Affordable (MHA) program ended in 2016, but the U.S. Department of Treasury says that help may still be available through the Hardest Hit Fund (HHF) if you contact your lender directly.
- Local mortgage assistance programs
- If you are considered low-income or are on the verge of foreclosure, state and county assistance programs can help modify your loan to make it more affordable.
» MORE: Government assistance programs: What are your options?
FAQ
Will lowering my monthly mortgage payment affect my credit score?
Lowering your monthly mortgage payment may not directly affect your credit score. However, the actions you take to achieve a lower payment, such as refinancing or modifying your loan, could lower your credit momentarily. Your credit score usually bounces back quickly if you make consistent on-time payments.
Is it possible to lower my monthly mortgage payment if I have an adjustable-rate mortgage?
With an ARM, your interest rate and monthly payment can change over time. Refinancing your ARM to a fixed-rate mortgage can lower your monthly payment if your interest rate is lower and if it extends your loan term.
Are there any fees or costs associated with lowering my monthly mortgage payment?
Refinancing typically comes with closing costs, which can include application fees, appraisal fees and other charges. It's important to calculate these costs against potential savings to see if a lowered payment makes the refinance costs worthwhile.
Bottom line
Don’t let your monthly mortgage payment keep you from hitting your savings goals or having some freedom in your budget. It is best to figure out a way to reduce your mortgage payment before you get behind.
Refinancing is one way to lower your payments and possibly remove PMI, but you should ask about government assistance programs, too.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- U.S. Department of the Treasury, “Housing.” Accessed June 28, 2023.
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