If your mortgage payment is too high, you may wonder how to lower it. Fortunately, there are many ways. The most common is to refinance your mortgage, but there are other methods to use to decrease your mortgage payment.
The key is to look at the big picture, know what you can afford, and determine how to best refinance your mortgage to save money monthly and over the life of the loan. Most borrowers have many options, including an FHA or conventional loan, including fixed and adjustable-rate loans.
9 Ways to Lower Your Mortgage Payment
1. Refinance your Mortgage
The easiest way to lower your mortgage payment is to refinance your mortgage. If you can time it to get a lower interest rate than you currently have, your payment will decrease.
Also, if you’ve paid on your mortgage for a while, you’ll have less money to finance, decreasing your payment even further. The combination of less principal and a lower interest rate will likely result in a lower mortgage payment.
The key when refinancing is to get the most affordable terms. Consider the following:
- Find the lowest interest rate that you qualify for to keep your interest charges low
- Avoid paying points unless necessary
- Shop around for the lowest closing costs
- Consider the shortest loan term you can afford to keep your interest costs to a minimum
2. Eliminate PMI
If you pay PMI on your mortgage but can eliminate it, your mortgage payment will decrease.
There are two ways to eliminate PMI:
- Refinance your mortgage – If you have an FHA loan, you can’t eliminate mortgage insurance, but you can refinance into a conventional loan if you qualify. If you owe less than 80% of the home’s value, you won’t pay PMI on the new loan, causing your mortgage payment to fall.
- Remove PMI – If you have a conventional mortgage and owe less than 80% of the home’s original value, you can request that your lender cancel your PMI. As a result, you don’t have to refinance and can easily lower your mortgage payment.
3. Refinance to an Adjustable Rate Loan
If you have a fixed-rate loan but need a lower mortgage payment, you can refinance into an ARM. Adjustable rate loans have lower interest rates initially, usually for 3 – 5 years, depending on the mortgage. They then adjust annually.
During the introductory period, you can enjoy a lower interest rate and then decide how to proceed when the introductory period ends, either keeping the loan or refinancing again.
4. Lengthen the Loan’s Term
You may consider extending the loan term if you struggle to make your mortgage payments. When you extend the term, your payment automatically decreases because you have more time to repay the principal.
However, there is a downside to consider. When you lengthen the term, you pay more interest because it takes longer to repay the loan. Before deciding if this is the right choice, be sure to look at the loan’s total cost over the loan term.
5. Dispute your Property Tax Bill
Some areas allow you to dispute your property tax bill if you don’t think you were charged appropriately. This step requires some research to determine how or why the county reassessed your home incorrectly, but if you win, you could decrease your property tax costs and lower your mortgage payment.
6. Get New Homeowner’s Insurance
Your mortgage company requires homeowner’s insurance for as long as you have an outstanding balance, but you can look for cheaper insurance each year as long as you don’t have a coverage gap.
Since most insurance companies offer the lowest rates to new clients, you may save money on your mortgage payment by getting new insurance. Consider shopping for new insurance every year or a couple of years to keep reducing your mortgage payment.
7. Consider a Loan Modification
If you can’t qualify to refinance your mortgage, but need a lower payment, consider applying for a loan modification. Each lender has different requirements to qualify for a loan modification, and you must keep your mortgage with the same lender, but it may result in a lower payment.
A loan modification may be any of the following:
- Extend the loan term
- Decrease the loan principal
- Lower the interest rate
8. Consider a Loan Recast
If you have extra money to put toward your mortgage, you can pay the loan’s principal and have the lower balance recast. This works well for people who get a tax refund or work bonus and can put the money toward their mortgage.
A recast is often cheaper than a refinance because lenders don’t have to underwrite your loan or order a new appraisal or title work. Instead, they apply the money you have to put down on the home to the loan’s principal, decreasing how much you owe.
The lender then re-amortizes the loan based on the new balance, but all other loan terms, including the interest rate, remain the same.
9. House Hack
If you have an unused area of your home, such as a bedroom or finished basement, or you own a multi-unit property, you can rent it out, making your primary residence a rental.
When you house hack, you have a primary residence mortgage but earn rent from the space you rent. You can use the monthly income to cover your mortgage payment, or a part of it, reducing how much you owe.
Final Thoughts
It may seem impossible to lower your mortgage payment, but there are many ways. Of course, refinancing is the simplest way, but if you get creative, you may have other options.
If you refinance, consider the difference between an adjustable-rate and fixed-rate loan and whether you can eliminate mortgage insurance from your loan. If you’re considering refinancing, let Priva Mortgage help you find the best loan for your situation!
