How to Lower Your Mortgage Payments

Refinancing and Other Ways to Reduce Your Mortgage Costs

Your monthly mortgage bill typically includes payments for interest, principal, homeowners insurance, property taxes, and, if your loan requires it, mortgage insurance. Most homeowners are interested in ways to lower their mortgage payments. Here are some ways you can!

Refinance to a Lower Interest Rate

Refinancing to a lower interest rate is one of the most common ways you can lower your mortgage payment. You’ll want your new interest rate to be significantly lower than the rate on your current mortgage when you consider this choice. You’ll also want to look at the closing costs you might have to pay in order to refinance. Make sure that paying these costs makes financial sense for you.

For example, let’s say that lowering your interest rate lowers your monthly payment by $100. However, you may need to pay $1,500 in closing costs to get a new mortgage with a lower rate. This means that you will break even at 15 months, then start saving money with your monthly payment after that.

Refinance to a Longer Loan Term

Another way to lower your mortgage payment is to refinance to a longer loan term. For example, if you have 20 years left on your mortgage, and you refinance to a new, 30-year mortgage, your monthly payments might be reduced.

However, it is important to understand that doing this could increase the total amount you’ll pay in interest over the life of your loan. That’s because you are paying back the money you owe over a longer period of time. In this case, lowering your mortgage payment does not mean that you are saving money.

If you are a current Freedom Mortgage customer, we can often help you keep your loan term the same when you refinance your home. That means we might be able to offer you a lower interest rate without adding years to the term of your new mortgage.

Pay Extra on Your Mortgage

Unlike a credit card, your mortgage probably has a set monthly payment of principal and interest. Paying more than the required amount one month does not mean you will have a lower payment amount the next. However, paying extra on your mortgage each month could help you pay off your mortgage faster and eliminate monthly mortgage payments, sooner. For example, paying extra principal each month could help you pay off a 30-year mortgage in 27 years and save you from needing to make 36 monthly payments.

Check Your Homeowners Insurance

Most lenders require you to have homeowners insurance and to make monthly payments to fund your escrow account which is used to pay the cost of homeowner’s insurance and taxes. You may be able to reduce this cost by shopping for new homeowners insurance or speaking to your current insurance company about lowering your premiums. If you are successful, you may be able to lower your monthly mortgage payment, too.

Check Your Property Taxes

Most lenders also require you to make payments toward your property taxes in your monthly bill, which they keep in an escrow account. In general, homeowners have limited control over the amount they pay in property taxes. If you can persuade your local taxing authority to lower your property taxes, you could lower your mortgage payment, too.

Stop Paying for Mortgage Insurance

When you have a Conventional loan, you will need to pay for private mortgage insurance (PMI) if your home equity is less than 20%. You may, however, be able to submit a request to cancel PMI once the principal balance of your loan reaches 80% of the original value of the property provided certain conditions are met. Your lender is required to remove PMI from your mortgage when the principal balance of your loan reaches 78% of the original value of your property. Keep in mind that FHA loans also come with mortgage insurance premiums. However, it can be harder to remove the mortgage insurance that comes with FHA loans, compared to Conventional loans.

Last reviewed and updated January 2024 by Freedom Mortgage.