For many people, a monthly mortgage payment is their biggest recurring bill. It may be the main expense that guides the development and management of their monthly budget, because that is an important bill to pay on time.
Prevailing wisdom says that your mortgage payment shouldn’t be more than 28% of your gross (pre-tax) monthly pay. But whatever that sum actually is, you may be wondering how to shave down the amount. Think about it: A lower mortgage payment could reduce your financial stress. And it can also open up room in your budget to allocate more money toward shrinking other debt, pumping up your emergency fund, and saving for retirement or other goals.
Below, you’ll learn more about your mortgage payment and possible ways to lower it.
Key Points
• Lowering your mortgage payment can free up funds for other financial goals like debt reduction and savings.
• Refinancing can secure a lower interest rate, reducing monthly mortgage costs.
• Making extra payments toward the principal can decrease both the term and total interest paid.
• Removing private mortgage insurance or appealing property taxes can reduce monthly expenses.
• Some methods of lowering a mortgage payment may result in an owner paying more interest over the long term.
Pros and Cons of Lowering Your Mortgage Payments
There are upsides and downsides to lowering your mortgage payments.
On the plus side, learning how to lower your monthly mortgage payment means you could have more money to apply elsewhere. You might apply the freed-up funds to:
• Pay down other debt
• Build up your emergency fund
• Put more money toward retirement savings
• Use the cash for discretionary spending.
On the other hand, there are downsides to consider too:
• You might wind up paying a lower amount over a longer period of time, meaning your debt lasts longer
• You could pay more in interest over the life of the loan
• If a lower monthly payment means you are not paying your full share of interest due, you could wind up in a negative amortization situation, in which the amount you owe is going up instead of down.
How to Lower Your Mortgage Payments
Now that you know a bit about how mortgage payments work and the pros and cons of lowering your mortgage payments, consider these ways you could minimize your monthly amount due.
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1. Refinance Your Mortgage
One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. A refinance (not to be confused with a reverse mortgage) means replacing your current mortgage with a new one, with terms that better suit your current needs.
There are a number of signs that a mortgage refinance makes sense, such as lower interest rates being offered or the desire to secure a fixed rate when you have an adjustable-rate mortgage. If your credit score has improved markedly since you purchased your home, you may qualify for a better rate than you were able to obtain initially.
Refinancing can result in a more favorable interest rate, a change in loan length, a reduced monthly payment, and a substantial reduction in the amount you owe over the life of your mortgage. Do note, however, that there are often fees for refinancing your mortgage.
A cash-out refinance can refinance your loan and provide you with a lump sum to use for home improvement projects. It’s often less costly than taking out a separate home improvement loan. (You can use a Home Improvement Cost Calculator to get an idea of what your project will cost.)
2. Recast Your Mortgage
If refinancing isn’t for you, study up on how to lower mortgage payments without refinancing — specifically, by doing a recast. If you get a bonus or other windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major lump-sum payment toward the loan principal on your home loan, you may benefit from mortgage recasting.
With recasting, your lender will re-amortize the mortgage but retain the interest rate and term. The new, smaller balance equates to lower monthly payments. Worth noting: Many lenders charge a servicing fee and have equity requirements to recast a mortgage, but fees are significantly lower than they would be for a refinance, and you don’t have to worry about what current mortgage rates might be.
If you don’t have a large sum on hand to use for a recast, you can also make extra payments on a schedule or whenever you can. Just make sure you tell your lender to apply the extra funds to the principal and not the interest. Paying extra toward the principal provides two benefits: It will slowly reduce your monthly payment, and it will pare the total interest paid over the life of the loan.
Refinance your mortgage and save–
without the hassle.
3. Extend the Term of Your Mortgage
If your goal is to reduce your monthly payment — though not necessarily the overall cost of your mortgage — you may consider extending your mortgage term. For example, if you refinanced a 15-year mortgage into a 30-year mortgage, you would amortize your payments over a longer term, thereby reducing your monthly payment.
This technique could lower your monthly payment but will likely cost you more in interest in the long run.
(That said, just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re often allowed to pay off your mortgage early without a prepayment penalty by paying more toward the principal.)
4. Get Rid of Mortgage Insurance
Mortgage insurance, which is needed for some loans, can add a significant amount to your monthly payments. Luckily, there are ways to eliminate these payments, depending on which type of mortgage loan you have.
Getting rid of the FHA mortgage insurance premium (MIP). Consider your loan origination date that impacts when you can get rid of the extra expense of mortgage insurance:
• July 1991 to December 2000: If your loan originated between these dates, you can’t cancel your MIP.
• January 2001 to June 3, 2013: Your MIP can be canceled once you have 22% equity in your home.
• June 3, 2013, and later: If you made a down payment of at least 10% percent, MIP will be canceled after 11 years. Otherwise, MIP will last for the life of the loan.
Another way to shed MIP is to refinance to a conventional loan with a private lender. Many FHA homeowners may have enough equity to refinance.
Getting rid of private mortgage insurance (PMI). If you took out a conventional mortgage with less than 20% down, you’re likely paying PMI. Ditching your PMI is an excellent way to reduce your monthly bill.
To request that your PMI be eliminated, you’ll want to have 20% equity in your home, whether through your own payments or through home appreciation. Your lender must automatically terminate PMI on the date when your principal balance reaches 78% of the original value of your home. Check with your lender or loan program to see when and if you can get rid of your PMI.
5. Appeal Your Property Taxes
Here’s another of the seven ways to lower your mortgage payment: Take a closer look at your property taxes. Your property taxes are based on an assessment of your house and land conducted by your county’s tax assessor. The higher they value your property, the more taxes you’ll pay.
If you think you’re paying too much in taxes, you can appeal the assessment. If you do, be prepared with examples of comparable properties in your area valued at less than your home. Or you may also show a professional appraisal.
To challenge an assessment, you can call your local tax assessor and ask about the appeals process.
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6. Modify Your Loan
Getting a loan modification from your lender is different from a refinance and is often a solution for homeowners who wouldn’t qualify for a new loan because they are experiencing financial difficulties. A modification changes the terms of a loan to make monthly payments more affordable. It’s a tactic that is usually used to provide relief to homeowners who are struggling to make their loan payments. If this is your situation, you can ask your lender for a new repayment timetable, a lower interest rate, or a switch from an adjustable rate to a fixed rate. Lenders aren’t obligated to agree, but if you can show proof of financial hardship, such as bank statements and tax returns, this may be an option.
7. Shop for a Lower Homeowners Insurance Rate
Many homeowners take a “set it and forget it” approach to homeowners insurance and pay for their insurance through their monthly mortgage payment. It’s smart to assess your coverage annually to make sure it is adequate. Take this opportunity to shop around for a lower rate. Three ways to potentially lower your insurance costs: Increase your deductible; buy your home and auto policies from the same insurer; and explore whether making your home more secure or storm-resistant might qualify you for a lower rate. Just remember: If you are getting a new policy, make sure it is fully in place before you cancel your old one.
The Takeaway
How to lower your mortgage payment? There are several possible ways. And who wouldn’t love to shrink their house payment? You might look at strategies to build equity and ditch mortgage insurance, extend the term of your loan, or refinance to reduce your monthly payment.
SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.
FAQ
What is the average mortgage payment?
According to the C2ER’s 2024 Annual Cost of Living index, the median monthly mortgage payment in the U.S. (excluding property taxes and homeowners insurance) is $2,132.
Can you pause or temporarily reduce mortgage payments?
If you can demonstrate that you are experiencing sudden financial hardship, a lender may allow you to pause or temporarily reduce your mortgage payments for six months or so through a process called mortgage forbearance. You’ll continue to accrue interest on your loan during this time, but requesting and being granted forbearance can help prevent foreclosure and damage to your credit.
Does refinancing always lower monthly mortgage payments?
Refinance doesn’t always lower your mortgage payment amount. Borrowers who do a cash-out refinance (borrowing against their home equity to get a lump sum they can use for education expenses, for example) might emerge from the refi with higher monthly payments. Another possible scenario: If you obtain a lower interest rate with a refi but choose a shorter loan term (10 or 15 years, for example), your monthly payment amount might increase.
Can rental income help with monthly mortgage payments?
Taking on a roommate or building an accessory dwelling unit (ADU) on your property that you rent out can certainly help defray monthly mortgage expenses. It won’t lower what you owe on your mortgage, but it will reduce your actual out-of-pocket cost.
What credit score do you need to refinance for a lower mortgage payment?
If you’re refinancing a conventional mortgage, you’ll typically need a minimum FICO® credit score of 620, although a score of 740 or more qualifies borrowers for the best interest rates. If you have a government-backed FHA loan, you’ll need a score of 580 or more. Whether refinancing will result in a lower mortgage payment will depend on the interest rate on your original mortgage, current interest rates, and the type of refi you choose as well as your credit score.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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