How to Lower Your Mortgage Payment

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You can lower your mortgage payment by refinancing for a lower interest rate, making a bigger down payment, or modifying the loan terms. You can also make extra payments toward your mortgage principal to lower your mortgage payment. Learn more about the different ways to reduce your mortgage payment and how to weigh the pros and cons of each.

Key Takeaways

• Refinancing your mortgage to reduce the interest rate is a common way to lower your mortgage payment.
• Finding ways to cut insurance costs can help reduce your mortgage payment.
• Appealing a hike in the appraised value of your home may lead to a lower mortgage payment.
• A lower mortgage payment can help you improve your cash flow, but you may pay more in the long term.

What’s in Your Mortgage Payment

Your mortgage payment typically has four parts:

• Principal: The principal is the amount of money you borrow to buy your home. You pay this off over the term of the loan, such as over 30 years.
• Interest: A mortgage interest rate is the cost of borrowing the money you used for your home purchase. Factors that affect the interest amount are the interest rate (a percentage), the loan amount, and the loan term.
• Taxes: Generally, homeowners pay property taxes to local government entities.
• Insurance: A mortgage payment normally includes homeowners insurance to financially protect the property in case of disasters such as fires and tornadoes. In addition, private mortgage insurance (PMI) might be rolled into the mortgage payment. A mortgage lender will require PMI if you took out a conventional loan with a down payment of less than 20% of the sale price.

Reducing the Principal

Recast Your Mortgage

A mortgage recast involves making a lump-sum payment to reduce the principal. After that, the mortgage servicer calculates a new monthly payment based on the decreased balance. The interest rate and payoff period don’t change.

Lowering the Rate

You can also lower your mortgage payment by refinancing with your mortgage lender or another mortgage lender to gain a lower interest rate or modify the loan terms.

Refinance to a Lower Rate

If interest rates drop, you may be able to score a lower rate on your mortgage. In turn, that should decrease your monthly payment.

Other potential benefits of refinancing include:

• Removal of PMI requirement
• Availability of money for home improvements and other needs with a cash-out refinance
• Fixed interest rate if current interest rate is adjustable
• Earlier payoff if loan term goes down

Modify Your Loan

You may be able to modify the term of your loan to extend it, such as from 15 years to 30 years. Modifying your loan term would lead to a smaller monthly mortgage payment, but it also would mean paying more interest over the life of the loan.

Lowering Your Taxes

You may be able to lower your property taxes by appealing the assessed value of your home with your local tax authority.

Appeal Your Property Taxes

You pay property taxes on the assessed value of your home, and these are often included in your mortgage payment. If your home’s assessed value increases, you’ll pay more taxes. But you should be able to appeal the higher assessed value and possibly get the value reduced. A lower assessed value should cause your property tax bill to decline.

Once you’ve filed a protest—either on your own or with help from a professional—you’ll need to collect information to back up your case. This evidence will likely include sales data for similar homes.

Lowering Insurance Costs

Getting rid of mortgage insurance and cutting your homeowners insurance premium are two ways to lower your insurance costs.

End Your Mortgage Insurance

Depending on your mortgage, you might pay for PMI or an FHA mortgage insurance premium (MIP).

• PMI: The most common way of getting rid of PMI is to ask the loan service to cancel it once the principal of your mortgage falls below 80% of your home’s original value.
• FHA loan MIP: Federal Housing Administration (FHA) home loans generally require a Mortgage Insurance Premium (MIP). The MIP is paid as an upfront fee (a percentage of the home’s sales price) and as part of your monthly mortgage payment. It expires after 11 years if you make a down payment of at least 10%. You also can ditch MIP if you refinance your mortgage into a conventional loan.

Shop Around for Cheaper Homeowners Insurance

Homeowners insurance is usually paid as part of your monthly mortgage bill. If you haven’t shopped around in a while, you may want to compare quotes before your policy comes up for renewal. Consider getting quotes from at least three insurers.

Other Ways to Lower Your Mortgage Payment

Explore Mortgage Forbearance

If you’re struggling to make mortgage payments, you might want to look into mortgage forbearance.  If your loan servicer or mortgage lender approves your forbearance request, you may be able to make smaller payments or temporarily halt your payments. This is only a temporary measure, though, since you’ll need to eventually pay back the full amount of your loan.

Frequently Asked Questions (FAQs)

How Do You Lower the Mortgage Payment When Buying a House?

You can take several steps to lower the mortgage payment when buying a house. Among them are making a bigger down payment, taking out a longer-term loan, or buying points to reduce the interest rate.

How Can I Reduce My Mortgage With Extra Payments?

You can reduce your mortgage balance by making extra payments. For instance, you might periodically make extra payments when you’ve got some extra cash. Or you can make payments every two weeks rather than once a month. This strategy will result in making the equivalent of one extra monthly payment each year.

Can You Decrease Your Mortgage?

You can make several moves to decrease your mortgage. Among the possibilities are making a larger down payment, making extra mortgage payments, refinancing to score a lower interest rate, and switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

How Do You Pay Down a Mortgage Fast?

Fortunately, you’ve got several tools for paying down a mortgage fast. These include refinancing your mortgage to get a lower interest rate, making extra mortgage payments, adding more money to each monthly payment, or applying extra cash (such as a tax refund) to your mortgage.

Read the original article on Investopedia.