Simple Ways to Reduce A Mortgage Payment

May 08, 2018 · 4 minute read

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Simple Ways to Reduce A Mortgage Payment

Reducing your monthly mortgage payments can be a big ask. But paying too much toward your mortgage can eat away at your monthly income, which might mean struggling to pay for essential living expenses, dipping into your emergency fund, or ignoring other financial goals.

It’s good idea not to have your mortgage payment be more than a third of your income, so if you’re paying more than that, it could be a sign that it’s time to consider lowering your payments.

Luckily, 2019 might be the perfect time to lock in a lower mortgage rate because it appears that the Federal Reserve is not going to raise rates until the end of next year. When the Federal Reserve raises interest rates, it makes it more expensive for banks to borrow money from the government, which in turn means that your lender may raise interest rates on products like credit cards or variable rate mortgages. Because the federal rate hikes can cause an interest rate spike, securing a lower rate before the Federal Reserve raises rates later this year can save you money.

There are ways to bring down your monthly payment that don’t involve giving up your beloved avocado toast or digging through your couch cushions for spare change.

A lower mortgage payment could mean more flexibility in your budget, and the ability to divert some of your money to other important goals, like paying off debt, building investments, and rebuilding a healthy emergency fund. Here are four ways to lower your mortgage payments:

1. Put down a bigger down payment.

Let’s start with the basics: Paying a higher down payment upfront means that your mortgage and your monthly payments will be lower. While this may seem obvious, many homebuyers strive to save 10% to 20% of an estimated purchase price, and when they hit that mark, they stop saving.

But if you’ve hit your down payment goal, don’t stop saving—every little bit counts, and there’s no maximum amount you can put down. If you’re able to increase your down payment, you’ll save on monthly mortgage payments and pay less interest over the life of your mortgage.

If you’ve already made your down payment, don’t despair! There are other ways to lower your monthly payments.

Refinance your mortgage and save–
without the hassle.


2. Give your mortgage a bonus.

If you get a bonus or a windfall, consider throwing some of that money at your mortgage. If you are in a position to make a major payment on your existing home loan, you may be eligible to benefit from mortgage recasting.

Mortgage recasting lets you pay off a chunk of your existing loan in return for smaller monthly payments based on your new, lower balance. Many lenders offer mortgage recasting, but most charge a fee and require that you pay off a certain amount of your principal balance in order to take advantage of the program.

3. Rent out part of your home.

You’ve probably seen this on a home-buying TV show; A buyer chooses a larger house that costs more, because there is an adorable in-law suite that they plan to rent out. The rent then contributes to the mortgage payment, making it more affordable for the owner.

By this same logic, it may be an option for you to rent out part of your house, and use the rental income toward the mortgage so you’re paying less out of pocket. The only downside to this plan, of course, is that you have to take on the responsibility of being a landlord and deal with other people in your space.

4. Extending Your Loan

If you took out a 15-year mortgage, you could extend the loan term and reduce your payment. You do this by refinancing back into a 30-year mortgage, which amortizes your payments over a longer term, thereby reducing your monthly payment.

This technique, also known as “recasting,” could lower your monthly payment, but may cost you more in interest in the long run. Still, this is a relatively easy solution for someone who needs to lower their monthly payment, fast, and qualifies to do so.

And just because you have a new 30-year mortgage doesn’t mean you have to take 30 years to pay it off. You’re always able to pay more toward the loan’s principal whenever you’re feeling flush. If you have questions about the process, you can always contact your lender and ask about the process of recasting a mortgage.

5. Getting rid of Your PMI

If you took out a mortgage with less than a 20% down payment, you’re likely paying private mortgage insurance or PMI. Depending on the size of your mortgage, PMI could amount to hundreds of dollars per month and thousands per year. Ditching your PMI, if your mortgage qualifies, is an excellent way to reduce your monthly bill.

In order to request that your PMI be eliminated , you’ll want to have 20% equity in your home, whether through your own payments or due to an increase in the value of your home.

Recommended: Thinking about starting a new home renovation project? Use this Home Improvement Cost Calculator to get an idea of what your project will cost.

Either way, being proactive and asking your lender to eliminate your PMI probably can’t hurt; most lenders won’t automatically drop it until you are at 22% equity . Check with your lender or loan program to see when and if you can get rid of your PMI.

6. Reviewing Your Tax Bill

Think you’re paying way too much in property taxes? If you find errors in your tax bill or see that your property value has dropped without cause, you may be able to challenge your tax assessment. As you may know, your lender collects money for your property taxes to be placed in an escrow account until your annual taxes are due. To challenge an assessment, you can call your local tax assessor call your local tax assessor and ask about the appeals process.

7. Refinance your mortgage.

One of the best ways to reduce monthly mortgage payments is to refinance your mortgage. Refinancing your mortgage means replacing your current mortgage with a new one, with terms that better suit your current needs.

Refinancing your mortgage gives you the opportunity to see if you are eligible for more favorable terms on your interest rate, changing the length of your loan or your monthly mortgage payment. Refinancing may not only help you pay less each month, but it could actually reduce the amount you owe over the life of your home loan.

If you’re ready to lower your mortgage payments, find out how refinancing your mortgage with SoFi can help.


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