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How to Lower Your Mortgage Payment

how to lower mortgage payment

A high mortgage payment can account for a large majority of your income, leaving you with very little to cover the rest of your regular living expenses each month. It’s best to keep your mortgage costs low and under 30 percent of your take home income so you won’t feel a financial strain each month. If you’re wondering how to lower your mortgage payments each month, there is more than one way to achieve that goal.

If you feel like your monthly mortgage is too high, here are 10 ways to reduce your mortgage.

1. Extend Your Repayment Term

A simple way to lower your mortgage payment is to extend your term (which is also referred to as re-casting or re-amortizing) if you can. You don’t even need to refinance your mortgage to do this because most lenders will simply offer this service for a fee of about $250.

If you extend your 15- or 30-year mortgage to a 40-year mortgage, your monthly mortgage payment will decrease since you have more time to pay back your loan by stretching out the term. While you may pay more interest on your mortgage over time with this option, it’s best for borrowers who need an immediate solution and may consider refinancing their mortgage in the future.

2. Refinance Your Mortgage

If you do choose to refinance your mortgage, it is one of the best ways to help ensure you lower your mortgage payment and your interest rate so you can pay less in interest over the life of your loan. You must have good credit to refinance, but you can utilize our refinance calculator to estimate how much you can save and how your mortgage payment would be decreased by.

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3. Make a Larger Down Payment

If you are still in the market for a home, consider putting a large down payment down in order to keep your monthly mortgage low. While it’s best to put at least 20 percent down, if you aren’t in an immediate hurry to buy, see if you can set aside even more.

The more you put down on your home, the lower your mortgage will be. And if you put at least 20 percent down, you won’t have to pay private mortgage insurance which will save you quite a bit of money as well.

4. Get Rid of Your PMI

If you bought your house and put down less than 20 percent of the purchase price as a down payment, you are probably paying mortgage insurance on top of your regular mortgage payment which can add tens or even hundreds of thousands of dollars to the overall cost of your home loan.

The good news, however, is that you can get rid of PMI. First, you have to repay enough of your mortgage so that you gain at least 20 percent equity in your home. Then, you can request your lender drop your PMI. Your lender may send an appraiser to your property to verify how much equity you have in your home before getting rid of the PMI, but either way if it is removed, your mortgage payment will be lowered.

5. Have Your Home’s Tax Assessment Redone

If your home loan has an escrow, property taxes may take up a noticeable chunk of your mortgage payment each month. Property taxes are based on each county’s tax assessment of how much your home or land are worth. Some homes in urban areas are overvalued causing the taxes to be high. The assessment is different from an appraisal since it is conducted by your county for tax purposes only.

As a homeowner, you can request to have the assessment done again or protest it by filing with your county and requesting a hearing with the State Board of Equalization. If the protest is approved, your homeowner’s taxes will decrease along with your monthly mortgage payment.

6. Make Extra Payments Toward the Principle

If you’d rather see your mortgage payments decrease later instead of instantly, you should actually consider making extra payments on your mortgage each month. Like with all debt that has an interest rate, the more you put toward the principal balance, the sooner you pay the debt off and in the meantime, your extra payments can help reduce what you owe in the future.

If you can manage to make double payments each month for a year, you’ll reduce the principle balance of your loan, pay less in interest, and possibly gain more equity in your home so you can drop PMI if you have it.

Making extra payments isn’t always easy, but if you have a dual-income household, or receive any gift money or bonuses at work, you can certainly try to achieve that goal.

7. Choose an Interest-Only Mortgage

When you get a mortgage, some lenders don’t require you to begin paying off your balance right away and will offer you an interest-only loan. Interest-only (I/O) mortgages occur in two stages: the first phase, where you only pay the interest on your mortgage and the second phase, where you pay off the actual principal balance plus interest.

If you have a 30-year mortgage and spend the first five years paying only interest, your monthly payment may seem pretty low, but you must pay off the rest of your mortgage in the remaining 25 years. I/O mortgages are a temporary way to lower your mortgage payments and can work out as long as you plan to increase your payments after the interest only phase is up.


8. Pay Your PMI Upfront

When you close on your home, you’ll have the option to pay your private mortgage insurance upfront if you didn’t put 20 percent down. Instead of having to pay extra on your mortgage year after year, you can just take care of PMI by paying a one-time fee.

This is why it’s important to budget for extra expenses associated with buying a home and have plenty of savings set aside so you can make money-saving decisions like this. You may not have enough in your bank account to make a 20 percent down payment, but you may be able to cover your mortgage insurance.

9. Rent Out Part of Your Home

If you have the extra space, having a tenant can greatly reduce the cost of your monthly mortgage payment. If you have an extra bedroom, basement, or addition on your home, consider renting space out to a friend or trusted tenant who can pay you rent each month.

Even if it’s just $300, that will help knock your mortgage payment down quite bit if you can’t refinance or utilize some of the other options just yet.

10. Federal Loan Modification Programs

If you’re undergoing a financial hardship and need to reduce your mortgage payment as a result, there area few federal loan modification programs to choose from. They can be available through your lender and you must meet certain eligibility requirements in order to reduce your mortgage payments short-term or long-term.

If you are having trouble paying your mortgage, talk to your lender and explore all of these options mentioned above to see which solution will help improve your situation.


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