Homeowners

How To Lower Your Mortgage Payments: Smart Moves That Can Save You Thousands

A mortgage payment may be one of the largest expenses in a homeowner’s monthly budget, but the amount isn’t always set in stone.

Whether you’re a recent buyer adjusting to today’s mortgage rates or a long-time owner looking for more financial breathing room, there are several ways to reduce your monthly payment.

Some of these strategies involve leveraging current market conditions, while others require a little paperwork or a one-time financial investment.

However, all are worth considering if the goal is to reduce overall costs and improve cash flow over the long term. Here’s what homeowners looking to reduce their budget need to know.

Refinance your mortgage when the math supports it

Refinancing your mortgage means replacing your current loan with a new one. And if you can secure a loan with a lower interest rate or a longer term, that may save you money each month. However, with rates still hovering between 6.5% and 7%, a refinance only makes sense under certain conditions.

If current rates are at least a full percentage point below the rate you secured, and you plan to stay in the home for at least another several years, refinancing could be a good idea.

Be sure to account for upfront fees of the new loan, which usually range from 2% to 5% of your loan amount. The savings over the life of the loan can be significant, but they don’t happen immediately.

Therefore, it’s important to do the math or consult a mortgage advisor before proceeding.

If the math works in your favor, preparation can improve your chances of securing the best deal.

“Lenders base their [loan] pricing on income, assets, credit, and property condition,” said Anthony Ramirez, a loan consultant with New American Funding based in San Diego, Calif.

Taking steps like paying off debt to raise credit scores, sprucing up your home for a stronger appraisal, or working with a CPA to make sure tax deductions don’t drag down reported income can all help land better loan terms.

Ask your lender about recasting your mortgage

Recasting isn’t as well-known as refinancing. But it can be an efficient way to lower your mortgage payment, without changing your mortgage rate or length of your loan.

A mortgage recast involves making a one-time, lump-sum payment toward your principal. Your lender then recalculates your monthly payment based on the new, lower balance. The loan term remains the same, but your payment amount decreases.

Unlike a refinance, recasting usually involves fewer fees and doesn’t require credit approval or a new loan application. It’s especially helpful for homeowners who receive a financial windfall, such as a bonus, inheritance, or sale proceeds from another property, and want to put that money toward their mortgage without resetting the loan term.

This option is generally only available on Conventional loans, so it’s worth calling your loan officer to ask.

Removing PMI from your mortgage

If you put down less than 20% when buying your home with a Conventional loan, there’s a good chance you’re paying private mortgage insurance (PMI). This is an extra monthly cost that you pay to protect your lender for agreeing to lend you the money to buy your home.

Fortunately, it doesn’t have to stay on your bill forever.

Once your loan-to-value (LTV) ratio reaches 80%—meaning you now hold at least 20% equity in the home either by paying down the principal or due to rising home values—you can ask your lender to remove PMI.

At 78%, removal becomes automatic for Conventional loans. Yet many homeowners don’t realize they’ve already passed that point. A recent appraisal might be all you need to confirm your home’s value and eliminate a monthly expense.

Refinancing FHA loans

Homeowners with Federal Housing Administration (FHA) loans face a different situation. The mortgage insurance premiums (MIP) on these loans often remain for the duration of the loan—unless you refinance.

If you put down 10% or more on an FHA loan made after June 3, 2013, you may be able to cancel the insurance after 11 years if you have at least 20% equity in your home.

You can also consider refinancing if it makes sense given your financial situation.

“If you are currently in an FHA loan, you could possibly refinance into a Conventional loan to lower your monthly mortgage,” said Ken Smith, sales manager at New American Funding in Georgia and South Carolina markets. “Eliminating MIP can instantly lower your mortgage.”

Check escrow costs

If your mortgage includes escrow payments for property taxes and insurance, increases in either can raise your monthly bill. The good news? You might be able to bring those costs down.

Start with your property tax assessment. If your home’s value looks inflated compared to similar nearby sales, or if your record contains errors—like the wrong square footage—you may have grounds to appeal.

Most places let you challenge an assessment for a set time. You typically need to provide proof of comparable home values.

Next, review your homeowners insurance. Premiums can increase each year, directly affecting your escrow account—and your mortgage payment.

Shop around for quotes, consider bundling with auto coverage, or adjust your deductible if it makes financial sense. Even small savings on your annual premium can lower your monthly payment when your lender recalculates escrow.

Add one extra mortgage payment per year

Making one additional full principal payment each year—either in a lump sum or by dividing it into monthly overages—can shave years off a 30-year mortgage and save tens of thousands in interest.

This approach won’t lower your monthly payment immediately, but it will reduce the total interest you pay and shorten the length of your loan.

If you prefer a set-it-and-forget-it method, ask your lender about bi-weekly payments. This can accomplish a similar result without the need for annual scheduling.

Anthony Ramirez NMLS # 249819

Ken Smith NMLS # 1693047