How to Lower Your Mortgage Payment - SmartAsset

A mortgage payment is often one of the largest monthly bills that a household pays each month. By reducing this payment, you can free up more money to invest for your future or pay off existing debt. While earning more money by getting a raise or starting a side hustle can help in the long term, lowering your bills is the quickest path to extra cash. Luckily there are a handful of strategies you can use to save on your mortgage. Speaking over your long-term financial plans with a financial advisor can also be helpful.

Strategies for Lowering Your Mortgage Payment

When looking to ease the burden of a big mortgage payment, one approach is to explore ways to modify the mortgage itself. There are at least five possible options in this regard. Here’s a breakdown of each course of action you could take:

Lengthen the Term

Many homeowners refinanced their homes to lock in ultra-low interest rates in recent years. Some of them also shifted from a 30-year to a 15-year mortgage, which could now be causing a strain on the monthly budget. By refinancing the loan to a longer term, you’ll lower your monthly payment by extending the time you’re paying off the principal. As your financial situation changes, you can always pay extra to mimic a 15-year payment, while keeping the flexibility of a 30-year mortgage.

Lower the Rate

Reducing the interest rate on your mortgage is a simple way to reduce your mortgage payment. When you lower the interest rate, more of your money goes towards paying down your loan versus creating profits for the bank. When refinancing to lock in a lower rate, take a look at the loan’s closing costs. Divide your monthly savings into the closing costs to determine how long it will take for you to break even on the refinance. If it takes more than five to seven years, the refinance may not be worth it.

Recast Your Mortgage

If you’ve been paying extra on your mortgage each month or with periodic lump-sum payments (like an annual bonus or tax refund), you may be far ahead on your loan payments. You can lower your mortgage payment by recasting your loan. This won’t change your interest rate or change the term of your loan. Instead, the lender recalculates your monthly payment based on your current rate and the remaining number of months on your month.

Seek Mortgage Forbearance

Homeowners who are going through financial difficulties can receive temporary relief with a mortgage forbearance. During a forbearance, the mortgage company can suspend or reduce your mortgage payment to provide some breathing room in your monthly budget. After the forbearance period is over, your normal mortgage payments will resume. The relieved amounts are usually tacked onto the end of your mortgage.

Request a Loan Modification

For severe hardships, a loan modification may be the way to go. In this situation, the lender restructures your loan to permanently reduce your monthly mortgage payments. To achieve the lower payments, the lender may reduce your interest rate, forgive a portion of the balance, extend the term of the loan or some combination of the three.

Focusing on Insurance

When you buy a home with less than 20% down, the lender typically requires mortgage insurance to protect them in case you stop making payments. Mortgage insurance can be hundreds of dollars each month, depending on the size of your loan, so this can be a big win for your pocketbook.

The good news is that there are countless homeowners insurance companies offering policies to cover your home. It pays to revisit your policy every couple of years. Contact your current insurer and some competitors to ensure that you’re getting a good deal.

When you talk with the agents, compare coverage based on your current policy, then also discuss additional ways to save. You may qualify for savings through promotions, memberships, eliminating unnecessary coverage or adjusting your deductibles. Since most mortgage payments include homeowners insurance and property taxes, lowering your insurance premiums can reduce your mortgage payment.

As you’ve been paying down the loan each month and home values continue to rise, you may be at the magical 80% loan-to-value marker. Some lenders remove mortgage insurance automatically based on the loan schedule, while others allow you to get rid of it based on the home’s current value. In this case, you’ll pay for an appraisal to show how much your home is worth and submit it with the required documentation to the lender. With FHA loans, you may have to refinance your loan in order to remove the mortgage insurance.

Non-Mortgage Options for Lowering Your Housing Bills

Your local county government charges property taxes based on the assessed value of your home. In some cases, these values are projections and may not reflect the current reality of the housing market. If you feel that their value is too high, you can appeal the value of your home. Successful outcomes will reduce your property tax bills, which can lower your mortgage payment if your property taxes are impounded.

Secondly, consider applying for a homestead exemption, if you qualify. This is a way to reduce the assessed value of your home for property tax purposes. Not every state offers homestead exemptions. Check with your local county tax assessor’s office to see if this is available.

Thirdly, many homeowners who are retired, or are getting close to it, consider selling their home and buying something cheaper. They may find a smaller home in their existing community or move to a city that has more affordable houses. You may even be able to use your home’s equity to buy a new home without a new mortgage.

Bottom Line

Mortgage payments tend to be one of the largest bills you pay each month. By reducing this payment, you can free up cash to use for your other goals. There are numerous ways to lower your mortgage payment, depending on which makes sense for your situation. Discuss your situation and goals with a financial advisor. They can help you analyze your options to determine what the optimal choice is for you.

Tips on Mortgages

Many people assume that a financial advisor only provides advice for stocks, bonds and other investments. Financial advisors can also review your income and expenses to provide suggestions to help you reach your financial goals. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Interested in learning what mortgage rates are available on that open market? SmartAsset’s rate comparison tool is a good place to start.
Between the mortgage, utilities and ongoing maintenance, owning a home can be expensive. Finding effective ways to reduce these expenses can help you stay within your budget. Our home affordability calculator helps readers determine how much home to buy based on their income and expenses.