How to lower your mortgage payments
Refinancing and other ways to reduce your mortgage costs
Your monthly mortgage bill typically includes payments for interest, principal, homeowners insurance, property taxes, and mortgage insurance if your loan requires it. Most homeowners are interested in ways to lower their mortgage payments. Here are some ways you can do it!
Refinance to a lower interest rate
Refinancing to a lower interest rate is one of the most common ways you can lower your mortgage payment. You want your new interest rate to be significantly lower than the rate on your current mortgage when you consider this choice. You also want to look at the closing costs you might have to pay to refinance. Make sure paying these costs makes financial sense for you.
For example, say lowering your interest rate lowers your monthly payment by $100. However, you need to pay $1,500 in closing costs to get a new mortgage with a lower rate. This means you will "break even" at 15 months and start saving money with your next monthly payment.
Refinance to a longer loan term
Another way to lower your mortgage payment is to refinance to a longer loan term. For example, if you have 20 years left on your mortgage and you refinance to a new 30-year mortgage, your monthly payments might go down.
However it is important to understand that doing this could increase the total amount you pay in interest over the life of your loan. That’s because you are paying back the money you own over a longer period of time. In this case, lowering your mortgage payment does not mean you are "saving money."
If you are a current Freedom Mortgage customer, we can often help you keep your loan term the same when you refinance your home. That means we might be able to offer you a lower interest rate without adding years to the term of your new mortgage.
Pay extra on your mortgage
Unlike a credit card, your mortgage probably has a set monthly payment of principal and interest. Paying more than the required amount one month does not mean you will have a lower payment amount the next. However, paying extra on your mortgage each month could help you pay off your mortgage faster and eliminate monthly mortgage payments sooner. For example, paying extra principal each month could help you pay off a 30-year mortgage in 27 years and save you from needing to make 36 monthly payments.
Check your homeowners insurance
Most lenders require you to have homeowners insurance and to make payments toward the cost of this insurance as part of your monthly mortgage bill. You may be able to reduce this cost by shopping for new homeowners insurance or speaking to your current insurance company about lowering your premiums. If you are successful, you may be able to lower your monthly mortgage payment too.
Check your property taxes
Most lenders also require you to make payments toward your property taxes in your monthly bill, which they keep in an escrow account. In general, homeowners have limited control over the amount they pay in property taxes. If you can persuade your local taxing authority to lower your property taxes, you could lower your mortgage payment too.
Stop paying for mortgage insurance
When you have a conventional loan, you will probably need to pay for private mortgage insurance (PMI) if your home equity is less than 20%. Keep an eye on the value of your home equity when you have a conventional loan. You may be able to remove PMI from your mortgage when your home equity grows to greater than 20%. FHA loans also come with mortgage insurance premiums. It can be harder to remove the mortgage insurance that comes with FHA loans compared to conventional loans however.
Last reviewed and updated January 2023 by Freedom Mortgage Corporation.