Discover practical ways to lower a mortgage payment, from refinancing and recasting to tax appeals, insurance savings, and hardship options.
- There are multiple options for lowering your mortgage payment, including refinancing, recasting, eliminating mortgage insurance, appealing property taxes, and adjusting your homeowners insurance.
- If you are experiencing financial hardship, forbearance can temporarily lower or pause your mortgage payments, while loan modification may permanently reduce your payments.
- Before altering your mortgage to lower your payment, it’s important to consider how the alteration may affect the overall cost of your loan as well as your repayment timeline.
As a homeowner, there are many reasons you may want (or need) to lower your mortgage payment. Perhaps you want to take advantage of lower interest rates or increased equity. Or maybe you’re working toward other financial goals, hoping to free up cash to save, invest, or pay down other debt. And many homeowners simply need more room in the monthly budget due to changing circumstances or a financial setback.
Whatever your situation and motivation, lowering your payment starts with understanding the components of your mortgage payment and knowing the options for changing those amounts.
The Elements of a Mortgage Payment
Mortgage payments commonly consist of four elements, known as PITI:[1]
- Principal: The amount applied to the loan balance.
- Interest: The cost of borrowing money.
- Taxes: Charges levied by local tax authorities on property owners.
- Insurance: This primarily refers to policies that protect homeowners against financial losses due to hazards like wind, fire, or accidents occurring on the property. In addition to homeowners insurance, some homeowners carry mortgage insurance, which protects the lender in case of default (this will be discussed in greater detail later in the article).
Ways To Lower Your Mortgage Payment
Refinance Your Mortgage
Mortgage refinancing replaces your current home loan with a new one. The new loan comes with its own interest rate and loan term, both of which could potentially lower your payment. The new interest rate could lower your payment if it’s less than the rate on your current mortgage. The new loan term could lower your mortgage payment by spreading your remaining loan balance over more months (or even years). However, it’s important to understand that a longer loan term may lead to higher interest expense over the full term of the loan.
Refinancing typically works best when you can secure a lower interest rate today than the rate on your current loan. Importantly, you will need to qualify for the new loan based on factors like income, credit scores, debt-to-income (DTI) ratios, and mortgage payment history.
There are also closing costs associated with refinancing. Even though these costs can often be rolled into the loan, it’s important to calculate the monthly savings compared to the cost of the new loan to make sure the refinance is worth the cost.
Recast Your Mortgage
Mortgage recasting is when the lender recalculates your mortgage after you make a lump sum payment toward the balance.
By making a lump-sum payment, you can reduce the principal balance and eliminate any interest that would have been due on that amount. Recasting updates future mortgage statements to reflect the reduced principal and interest.
Some lenders may not offer recasting, and those who do may have qualification criteria. For example, recasting may be limited to homeowners with certain loan types, home equity minimums, and/or a strong payment history. There may also be a minimum threshold for the lump sum payment to warrant a recast.
Eliminate Private Mortgage Insurance (PMI)
PMI is the type of mortgage insurance that generally applies to conventional home loans with down payments of less than 20%. Eliminating PMI could potentially lower your mortgage payment by hundreds of dollars each month.[2]
As long as your account is current, your loan servicer should automatically cancel the PMI when the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the secured property (based solely on the initial amortization schedule).[3]
It is also possible to request that the PMI be eliminated once the initial amortization of the loan is first scheduled to reach 80% of the original value of the property (you may need to order a home appraisal to confirm the current value).[3]
Adjust Your Property Taxes and/or Homeowners Insurance
Property taxes and homeowners insurance premiums are often included in your mortgage payment so that your lender can confirm that these necessary expenses are being paid. Since the property serves as collateral to secure the loan, the lender has a vested interest in the financial protection of the asset.
However, your lender (or loan servicer) cannot alter your property taxes or insurance. To adjust these expenses, you would need to go directly to the party levying the charges.
How to Lower Your Property Tax Bill
Because your property taxes are largely related to the taxable value of your property, your property tax bill can typically only be reduced if your property is worth less than the local tax assessor’s estimate. This is a surprisingly common occurrence, with an estimated 30-60% of taxable property in the US being over-assessed for tax purposes.[4]
Look at the assessed value on your property tax bill (or look it up online, as many tax assessors publish assessments on their websites). If you believe your home is currently worth less, you may contact the assessor’s office to appeal the value.
The appeal process may involve a formal appeal application, data on recent sales of comparable properties to support your estimated property value, and a discussion with a county appraiser or appeals board. Contact your local assessor’s office for more information on the appeal process in your area.
How to Lower Your Homeowners Insurance
There are multiple ways to lower your home insurance premiums, including switching providers, bundling packages, seeking out discounts, and increasing deductibles. Learn more about how to save on homeowner’s insurance.
Modify Your Loan
A loan modification is when the terms of your existing loan are altered to help you keep the home despite financial hardship.[5] If you’re facing potentially long-term financial hardship due to circumstances like job loss, disability, divorce, or the death of a co-borrower, a loan modification could help make your mortgage payment more manageable.
Like a refinance, a loan modification can potentially lower your monthly payment through lower interest rates, extended loan terms, or both (depending on market conditions and what the lender is willing and able to offer). Unlike a refinance, a loan modification typically does not incur closing costs because a modification does not require a new loan to be originated.
It’s important to remember that, while a longer loan term may reduce the monthly payment amount, it can also add to the total interest expense incurred over the course of the loan.
Mortgage Forbearance for Temporary Relief
Mortgage forbearance is when payments are temporarily reduced or even paused due to a short-term financial hardship.[6] Federal employees who are unpaid during a government shutdown, for example, may need a brief respite from their mortgage repayment.
Forbearance is not debt forgiveness. The full amount of the loan plus interest will still need to be repaid.[6] Missed payments may simply be added to the end of the loan term. Or they may need to be paid immediately following the forbearance period. Discuss your needs and goals with your lender and make sure you understand how reduced or paused payments will affect future payments.
Frequently Asked Questions About Lowering Mortgage Payments
Can Making Extra Payments Lower My Monthly Payment?
Making extra payments typically will not lower your monthly payment. While it may reduce the repayment timeline and help save on interest payments, your payment schedule would continue as normal until the loan is refinanced or repaid. However, making an extra lump sum payment on your mortgage, then requesting a mortgage recast (as outlined earlier in this article) could lower your mortgage payment going forward.
Does Refinancing Always Lower Your Mortgage Payment?
No. A refinance could result in an increased payment if the interest rate on the new loan is higher than the rate on your current mortgage (in which case a refinance is likely not the best option for you) or if you shorten the loan term to pay off your mortgage sooner.
What if I Can’t Afford My Mortgage Payment Right Now?
If you can’t afford your mortgage payment now, you should reach out to your lender to discuss your options. When struggling to pay the mortgage due to a financial hardship, loan modification or forbearance may be appropriate for immediate relief.
Discuss Lowering Your Mortgage Payment with a Professional
Whether you’re looking to capitalize on lower interest rates or seeking help due to economic hardship, a mortgage professional can help you assess your unique financial situation and look for solutions that may work for you.
For personalized advice relating to your unique situation, contact a PNC Home Lending professional today at 1-855-762-9545.
