7 Ways to Lower Your Monthly Mortgage Payment

Here's how to lower your monthly mortgage payment

As you approach retirement—or even if you’re seeing other changes in your life—you might feel as though your mortgage payment is becoming unmanageable. Reducing your payment amount can give you more breathing room in your budget, freeing up your money for other purposes. Here are seven ways to lower your monthly mortgage payment.

1. Refinance to a Lower Interest Rate

One common recommendation is to refinance to a lower interest rate. This isn’t always possible in every rate environment. However, it might make sense to shop around and compare lenders to see if you can find a lower interest rate. With a lower interest rate, your payment will go down—and you may save money overall on total interest charges.

When you refinance, you replace your old loan with a new loan. If you don’t want a longer term, make sure that you refinance to the years you have left on your current mortgage (or a close time frame). For example, if you have ten years left on your mortgage, you might limit your refinance to a 10-year or 15-year loan. Depending on the amortization schedule and your interest rate, you’ll likely have a lower payment for the remainder of your mortgage, thanks to the lower rate. Be aware that refinancing may increase the length of your loan, the principal balance of your loan, and the total amount of interest you pay over the life of your loan.

2. Refinance to a Longer Loan Term

Perhaps you have 15 years left on your mortgage. By refinancing to a longer term—20 or 30 years— you will likely end up with a lower mortgage payment.

Pay attention to the new interest rate, though, and make sure that your monthly payment will truly be lower. Consider the cost to refinance as well. Most lenders charge origination fees and other costs because you’re essentially getting a new mortgage.

Realize, too, that even if the interest rate is lower, the longer term might result in paying more interest overall. The trade-off for a lower mortgage payment today might be to pay more money over the life of a lengthened loan. However, it might be worth it if it helps you meet your goals and ease a budget crunch.

3. Consider a Reverse Mortgage

If you’re over 62, a reverse mortgage offers an avenue to eliminate your monthly mortgage payment. Reverse mortgage borrowers are not required to make monthly mortgage payments, although they are still responsible for property taxes, fees, insurance, and maintaining the home. In addition to eliminating a required mortgage payment, reverse mortgages allow borrowers to borrow against the home equity as a lump sum, monthly payments, or a line of credit. So, in addition to reducing your monthly output, a reverse mortgage could offer you a way of making home improvements or doing something else your budget hasn’t had room for. 

4. Remove Your Mortgage Insurance

If you bought your home with a down payment of less than 20%, there’s a good chance you’re still paying private mortgage insurance premiums.

Once your home’s loan-to-value (LTV) ratio reaches 80%, you’re eligible to have the mortgage insurance premium removed. Depending on your policy, that might mean up to $150 or more each month. Double-check your payment to see if you’re still paying mortgage insurance, and then contact your loan servicer to find out if you’re eligible to have it removed.

If you haven’t had your mortgage for long enough for the amortization schedule to reach 80% LTV, you still might be able to have your insurance removed if your home has increased in value. Your lender will likely require an appraisal, but if market conditions result in a higher value, you might have crossed the threshold and can have your private mortgage insurance removed.

5. Get New Homeowners Insurance Quotes

Another part of your mortgage payment that you might be able to reduce is your homeowner’s insurance premium. Often you pay homeowners insurance as part of your monthly mortgage payment. Check your escrow payments to see if homeowners insurance is included. If it is, you might be able to pay less each month by switching to a new homeowners policy.

Compare quotes from three to five different companies. Also, consider whether you might get an overall discount by bundling your homeowner’s policy with an auto or life insurance policy. If you can get your home insurance premium down, that’s money in your pocket each month.

6. Appeal Your Property Tax Assessment

In many cases, a portion of your total mortgage payment goes toward your property tax bill. If you think that property taxes are too high, consider appealing. Each county or other authority has its own process for appeal, so find out from the assessor’s office what you need to do. If you’re successful, and your home is assessed at a lower value for property tax purposes, that will reflect in your monthly mortgage payment.

7. Rent Out Part of Your Home

Another way to reduce the portion of your mortgage payment is to rent out part of your home. Depending on the situation, you can provide a place for long-term or short-term renters. With a roommate paying you rent, you’ll be responsible for a smaller portion of your mortgage. If you don’t mind sharing space with others, this can be a way to make living in your home more affordable.

If you need a little more breathing room in your budget, lowering your mortgage payment can be one way to find relief. Research the options and figure out which is likely to work best for you as you work toward your other financial and life goals.

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