How to lower your mortgage payment

Figuring out how to lower your monthly mortgage payment can help you keep your housing expenses — and your budget — affordable and sustainable.

Making a big down payment or building significant equity in your home is the easy answer, but it’s not so easy if you don’t have a lot of cash to spare. Thankfully, there are other practical ways to reduce your mortgage payment.

We’ll review seven strategies to combat a too-high mortgage payment, which run the gamut from refinancing and recasting your home loan to trimming extra costs like property taxes and insurance.

1. Refinance to a lower rate

Best for: Creditworthy homeowners who could benefit from a new, lower rate

If you bought your house when rates were high and have since fallen, refinancing may help lower your monthly mortgage payments. Refinancing is replacing your existing home loan with a new mortgage, usually with a lower rate or different loan term. This is known as rate-and-term refinancing, and it could result in significant savings every month without increasing the overall cost of repayment.

Say you’re two years into repayment on a $400,000, 30-year mortgage tagged at 7% interest and interest rates fall to 6%. If you were to refinance the loan without lengthening the loan term at the lower rate, you’d save $258 on your monthly mortgage payments and nearly $10,000 over the life of the loan.

The best mortgage refinance lenders cater to homeowners who have at least a 620 credit score, but you’ll need a score well into the 700s to access the lowest, advertised rates.

2. Lengthen your loan term

Best for: Homeowners with shorter loan terms who need budget flexibility

If you think, “My mortgage is too high,” another way to reduce your monthly payment is to refinance to a longer loan term. This gives you breathing room when paying off your mortgage among life’s other expenses.

For example, if you just took out a 15-year mortgage but the payments are feeling tight with other expenses in the mix, refinancing to a 30-year mortgage can bring your payments down considerably.

Just be aware that adding more time on your loan means you’ll pay higher overall interest costs. That’s because you’re resetting the clock on payments, so more of your monthly mortgage payment goes toward interest than principal in the early years of repayment.

Try a mortgage refinancing calculator to understand the trade-off of monthly savings for long-term costs.

3. Recast your mortgage

Best for: Homeowners who receive a large windfall or plan to buy another home

A mortgage recast is when you make a large lump-sum payment toward your principal and ask your lender to reamortize your loan (simply put, come up with a new payment schedule) with the new, lower balance. You’ll keep the same term and rate, but the reduced principal means your monthly payments will be lower.

A mortgage recast is especially popular with borrowers who qualify for two home loans but plan to move into their second home before they’re able to sell their first property, said Scott Brookshire, a branch manager with Go Mortgage in Winchester, Virginia.

“As long as your new lender or servicer allows it, a mortgage recast lets you buy your next home without the (home sale) contingency,” Brookshire says. As a result, you can make a stronger offer to buy that new property.

4. Avoid mortgage insurance

Best for: Borrowers with ample cash savings

Lenders require you to purchase private mortgage insurance (PMI) for a conventional loan if you don’t make at least a 20% down payment. For every $100,000 you borrow, expect to pay $30 to $70 in monthly PMI costs.

Similarly, Federal Housing Administration (FHA) loans require you to pay an annual mortgage insurance premium (MIP). You’ll owe an upfront premium of 1.75% of your loan amount and continue paying it for 11 years or for the duration of repayment, depending on your down payment amount.

PMI and MIP protects lenders, enabling them to offset financial losses if you default on the mortgage.

To avoid this fee completely, make a down payment of at least 20% of the home’s purchase price on a conventional home loan. If you don’t have that much cash saved up, however, don’t worry — PMI isn’t paid forever. You can request PMI cancellation on a conventional loan once you’ve reached 20% equity in your home.

Your options for discarding MIP on an FHA loan are fewer, though you might consider refinancing to a conventional loan and getting on track to build at least 20% equity. Just be sure to weigh the pros and cons of refinancing before making that irreversible decision.

5. Appeal your property taxes

Best for: Homeowners who can prove their property valuation was miscalculated or is too high

If you pay your property taxes on a monthly basis (via an escrow account managed by your lender), your tax bill is one of the components of your monthly mortgage payment.

The bad news is that these taxes, which help local or county governments support public schools, police, roads and other local services, rise as home values climb.

The average property tax amount for single-family homes in the US rose by 3% in 2022, or an annual average of $3,901, according to ATTOM Data Solutions, a real estate research firm. That increase is on top of the 1.8% rise from the year prior, the report found.

If your annual property tax bill increases considerably during a valuation year, you can appeal it with your local or county property assessor’s office. You’ll find instructions on how to file an appeal on your property assessor’s website. Fees vary by county, but you may be free to file an administrative appeal with the assessor’s office.

A real estate agent can help you pull comparable properties during the assessment timeframe if you believe the assessor overvalued your home. While appealing isn’t guaranteed to work, it’s worth a try if you support your case with hard data.

6. Shop for cheaper homeowners insurance

Best for: Anyone who could lower their insurance bill without sacrificing coverage

Homeowners insurance, perhaps another escrowed line item in your monthly mortgage payment, is a type of coverage that provides financial protection for your property against loss or damage from natural disaster, fire, burglary or other catastrophes. And if you’re financing your home, lenders require this coverage to protect their investment.

If your insurer hikes your rates unexpectedly due to an increase in claims or natural disasters in your area — or if you can simply find a better deal elsewhere — shop around with other companies. As you compare rate quotes, make sure that you’re getting enough coverage to rebuild or repair your property if it’s heavily damaged or destroyed. Standard homeowners policies have limitations on what they cover and may not offer full protection in every circumstance.

7. Get a roommate

Best for: Homeowners who don’t mind having a roommate who can help pay the mortgage

So, technically, this doesn’t lower your monthly mortgage payment, but bringing in a renter can help make payments more affordable by reducing your own out-of-pocket expenses.

If you decide to rent out a room in (or section of) your home, put a signed lease agreement in place with your tenant that spells out a clear lease term, monthly rent and deposit amounts, any additional fees (such as for pets or utilities) and house rules.

To accurately set a rent price, compare similar, nearby rental listings on property search websites like Zillow and Trulia.

Understanding what makes up your mortgage payment

As you’re considering how to reduce a high mortgage payment, it may be worth a primer on how it got so high in the first place.

Your monthly dues consist of four key parts: principal, interest, insurance and taxes. Here’s a closer look at each of these items:

Principal

This is the amount of money you borrowed to buy your home, or the total unpaid balance. Principal payments build your equity over time.

The down payment you make (or made) at closing goes toward the principal amount. The larger your down payment, the less money you’ll need to borrow.

Interest

Your lender charges interest as a cost of borrowing money, and it’s expressed as a percentage of your loan amount. The interest rate on your loan depends on a number of factors, namely, market conditions and your credit score.

Your lender amortizes your loan repayment schedule in a way that results in your loan being paid off on time. This usually involves more of the payment going toward interest at the beginning of the amortization schedule than to the principal. As you progress into repayment, more of your dues will go toward paying down principal than interest.

Mortgage insurance

A down payment of less than 20% on a conventional loan means you’ll pay for PMI. This coverage protects the lender from financial loss if you fail to repay your mortgage.

Most loans insured by the FHA require an upfront mortgage insurance premium of 1.75% of the loan amount and annual mortgage insurance premiums for the life of the loan. (In February 2023, however, the federal government announced a 30-basis point reduction in annual FHA mortgage insurance premiums that’s estimated to save FHA borrowers $800 annually on mortgage payments.)

Escrow items

Some lenders require borrowers to use an escrow account to prepay annual property taxes and homeowners insurance premiums. Lenders calculate escrow payments for the year and bake them into your monthly mortgage dues. It’s worth noting that property taxes and insurance premiums can fluctuate over time, so your monthly mortgage payments may go up.

Some lenders don’t require you to pay these fees out of escrow. That means you’ll need to factor these costs into your budget and pay the bills directly to your homeowners insurance company and your local or county property assessor.

Frequently asked questions (FAQs)

How does my credit score impact my mortgage interest rate?

Generally, the higher your credit score, the lower your mortgage rate offers. Even a small difference in your rate offer can save you considerably on monthly mortgage payments.

Can I negotiate with my lender for a better mortgage rate?

You can buy down your interest rate by paying for mortgage points upfront. Basically, by using points, you’re prepaying interest on your loan.

A point is equal to 1% of the loan amount, so if you have a $300,000 mortgage, one point would be $3,000. Your loan officer can help you calculate whether or not buying points is a good idea.

What are the costs associated with refinancing my mortgage?

Refinance closing costs range from 2% to 6% of the new loan amount. Some lenders will allow you to do a no-closing-cost refinance, where the lender pays your closing costs upfront in exchange for giving you a higher interest rate or adding them to your loan amount.

How often can I refinance my mortgage?

There is no limit to how many times you can refinance a mortgage, but you have to meet your (new) lender’s refinance requirements. You’ll also want to calculate the costs of refinancing a mortgage and ensure you stay in your home long enough to reach the break-even point. This is the amount of time it’ll take to recoup your closing costs and realize the monthly savings of a refinance.