11 Ways to Lower Your Mortgage Payment

If you’re exploring how to lower your mortgage payment, you may have several options. Well-known strategies include refinancing and eliminating private mortgage insurance (PMI). Lesser-known methods include a home equity agreement and canceling escrow.

The best option for you depends on your situation—whether you’re tackling other debts, navigating seasonal hardships, or looking to save money over the long run. Here’s a closer look at 11 ways to lower your mortgage payment and how to choose the right one.

11 ways to lower your mortgage payment

In our research, we uncovered 11 of the best ways to lower your mortgage payment. Here’s a closer look.

Option	Best for
Loan modification	Long-term or unpredictable financial changes
Escrow waiver	Disciplined savers/budgeters
Property tax exemptions	Eligible homeowners with property tax bills
Lower homeowners insurance	Homeowners with homes equipped with energy-efficient appliances, windstorm upgrades, or a security system
Mortgage recast	Homeowners with high discretionary savings
Cancel PMI	Homeowners with 20% or more equity
Biweekly payments	Building a balanced budget while making one extra payment annually
Refinance	Locking in lower fixed rates
Streamline refinance	FHA, VA, or USDA homeowners seeking lower rates and closing costs
Home equity sharing agreement	Accessing loan-free cash
Forbearance	Temporary financial hardship or lengthy unemployment

Request a loan modification

Lenders typically reserve loan modification for borrowers experiencing financial struggles that make it challenging to make their payments. 

In general, getting approved for a loan modification will require:

• Proof of financial hardship
• Income and bank statements
• Tax returns

How it helps lower your mortgage payment

If you qualify, your lender may extend your loan term or lower your interest rate.

Who is it best for?

Only request a loan modification if you’re experiencing financial hardship, such as a drastic pay cut, job loss, or short- or long-term disability.

Request an escrow waiver

As a homeowner, you’re also responsible for property taxes. The funds you contribute to escrow through higher mortgage payments are usually meant to cover property taxes and homeowners insurance. 

However, for well-planning, financially stable homeowners, money sitting in escrow doing nothing all year could earn interest instead. 

What is the escrow waiver process like?

1. Call your lender or visit your lender’s website to find out about an escrow waiver form. (Not all lenders offer waivers.)
2. Read the qualifications
3. Submit the application and any required documents.
4. Once approved, your lender will adjust your mortgage payment and inform you when new payments take effect.
5. If you have a balance in escrow, request a withdrawal or reimbursement.

What do I do with the freed-up cash?

The best places to store up extra money over a short period of time include: 

• Short-term certificate of deposit (CD)
• High-yield savings account
• Money market account 

Who is it best for?

This may not be a practical option if you’re struggling to keep up or can’t depend on a consistent, steady income. On the other hand, this could be a great option if you:

• Are a disciplined spender and saver 
• Meet your lender’s requirements
• Prefer to budget for insurance and property taxes independently 

Note that a lender may require you to make 12 or 24 consecutive on-time payments, for example, or prove you can afford future homeowners insurance premiums and property tax bills.

Claim qualifying property tax exemptions 

Several states offer property tax exemptions you can claim to lower your mortgage. 

Example

Examples of property tax exemptions include:

• No property taxes whatsoever for disabled veterans—all 50 states offer some exemption for veterans.
• Homestead exemption, reducing your permanent residence’s taxable value.
• Credit for a surviving spouse of a veteran.

How do I claim an exemption?

Contact your local property appraiser or comptroller to learn more. Many have an online application process.

Who is it best for?

Any eligible homeowner, especially a widow(er), veteran or surviving spouse, or senior citizen.

---

Tip

Unreasonably high property taxes could indicate an error. If comparable properties nearby have lower bills, inquire about appealing your bill.

---

Lower homeowners insurance

Another indirect way to lower your mortgage payments is by lowering your homeowners insurance premium. 

Ways to lower your homeowners insurance

First, comparison shop at least once a year. Several companies offer new customers their best deals. Also consider:

• Asking your insurer about discounts for installing energy-efficient appliances, security systems, and similar upgrades
• Bundling homeowners insurance with auto insurance.
• Some insurers offer discounts for lump-sum premium payments.

Who is it best for?

Looking for ways to lower your homeowner’s insurance is always smart. It could be best for homeowners who:

• Recently made eligible home upgrades or enhancements
• Have remained with their insurer for several years
• Own a new home

You can begin comparison shopping by checking out our review on the best homeowners insurance companies.

Recast your mortgage

After making a lump-sum payment toward a mortgage, request a mortgage recast, which adjusts the amortization schedule—a detailed schedule of total payments, principal, interest, and term length—without changing loan terms. 

Example

For example, imagine you have a $300,000 initial loan balance on a 30-year fixed-rate mortgage at a 7.2% interest rate. You have $50,000 you’d like to use toward paying off your mortgage. Recasting the mortgage could reduce your total interest paid by more than $77,000 dollars.

Note that different states may have unique lending fees that could affect these numbers. Use our mortgage calculator to calculate your monthly payments in different scenarios.

Before recast	After	Difference
$300,000 principal	$250,000 principal	$50,000
$2,041.67 monthly payment	$1,701.39 payment	$340.28
$435,001.20 total interest (life of mortgage)	$357,093.08 total interest	$77,908.12
30 years left on mortgage	30 years left	0

Who is it best for?

Homeowners with FHA, VA, or USDA loans cannot recast. But with a conventional loan, you can. 

Consider recasting if you have a sizable savings account, excluding emergency savings, and current interest rates are high, which makes refinancing a no-go. 

Cancel PMI

Private mortgage insurance (PMI) is mandated for borrowers who make a down payment below 20%. PMI can cost as much as 1.5% of the loan every year, which is $4,500 on a $300,000 loan during the first year.

Will PMI cancel automatically once you have 20% equity?

No, but lenders are obligated to remove PMI once you achieve 22% equity. 

What are the steps?

1. Contact your lender for instructions. (If an appreciating market creates 20% equity, your lender may require an appraisal.)
2. Once approved, ask for written confirmation.
3. Review your next mortgage statement to confirm.

According to the Consumer Financial Protection Bureau, your lender must cancel your PMI if you: 

• Request to cancel in writing
• Are current on payments and have a good payment history 
• Have no home liens 
• Prove your home’s value is above its original value

Who is it best for?

This can make sense if you have at least 20% equity in your home. PMI, also known as mortgage insurance premium (MIP) for government-backed loans, can only be canceled on Federal Housing Administration (FHA), Veterans Affairs (VA), or U.S. Department of Agriculture (USDA) loans through refinancing.

Switch to a biweekly payment plan

Instead of one large payment—which could throw everything out of whack—biweekly payments split it.

Are there other benefits?

You bet. You’ll make 26 payments in a year—the equivalent of 13 monthly payments—and pay off your mortgage a few years ahead of schedule, saving time and interest.

Example

Suppose you have a 30-year mortgage with a monthly payment of $1,500. If you switch to a biweekly plan, you’d pay half this amount every two weeks, or $750. Instead of 12 monthly payments totaling $18,000 a year, you’d make 26 half-payments, which adds up to $19,500 annually. 

That extra payment each year reduces your principal faster, helping you pay off your mortgage several years early and saving you thousands in interest over the life of the loan.

Who is it best for?

It’s best for those looking to improve month-to-month cash flow. Just make sure your lender allows biweekly payments beforehand.

Refinance for a lower rate

Refinancing means you’ll begin paying off a new loan. 

Before this can occur, however, the prospective lender will typically order an appraisal and review your income, assets, and credit. Upon approval, you’ll have a “closing day” and pay closing cost fees—or add them to the loan.

How it helps lower your mortgage payment

Higher interest typically means higher monthly payments. So lower interest rates after refinancing mean lower monthly payments, especially if you had an adjustable-rate mortgage.

Example

Let’s say you have a $300,000 mortgage at a 6% interest rate, resulting in a monthly payment of around $1,800. After a few years, you refinance, and your new loan offers a 4% interest rate. By refinancing at the lower rate, your new monthly payment drops to $1,430, saving you $370 each month. 

Over the course of the loan, this rate reduction could save you tens of thousands in interest.

Can I refinance with my current lender?

It’s possible, but that all depends on your lender. If a lender offers refinancing along with favorable interest rates or lower closing costs for good borrowers, it’s worth applying. 

However, get a quote from a few other lenders to compare your rates and terms, especially if your current mortgage has no prepayment penalty.

Who is it best for?

Homeowners who:

• Originally assumed an ARM
• Have a fixed-rate mortgage with high rates
• Need cash

Streamline refinance your FHA, VA, or USDA mortgage

A streamline refinance applies to government-backed mortgages and loans insured by FHA, VA, or USDA. 

Typically, a lender cannot add closing costs, no appraisal is needed, and low-credit borrowers may be eligible.

It’s possible to streamline refinance with your current lender, but we recommend getting a few other lender quotes too.

Who is it best for?

It can make sense for FHA, VA, or USDA loan borrowers who:

• Aren’t looking to take cash out of their home equity
• Don’t have much equity
• Would potentially like to avoid closing costs or other fees
• Have consistently made on-time payments 

Use a home equity agreement

Through a home equity agreement or home equity investment, you access cash by selling a portion of your future equity to an investor.

You won’t owe monthly payments or upfront costs, but homeowners are required to repay the loan and equity portion at the end of the term or after selling or refinancing. 

How it helps lower your mortgage payment

The cash is yours to do whatever you want with. You could use it to pay down the principal, prompting a re-amortization—an adjustment to your payment schedule.

What to consider

• This agreement may require assuming a lien.
• After selling, you’ll have less equity since a portion belongs to the investor.
• Defaulting could cost you your home.

Who is it best for?

This option may be best for homeowners with substantial equity who:

• Need cash
• Can’t afford monthly loan repayments
• Have low credit

Seek temporary mortgage forbearance

Mortgage forbearance is a way to pause or lower your payments. Typically, interest still accrues, and once payments resume, you must pay back the entire amount. 

How do you repay paused or reduced payments?

Your repayment options might include:

• Lump-sum payment 
• Extended loan term
• Spread evenly across monthly payments

What are the eligibility requirements?

You must be able to prove you’re experiencing financial hardship. You may also need to apply within a certain time frame after hardship began.

Who is it best for?

This could be a helpful option if you:

• Lost your job and have little to no savings
• Were affected by a natural disaster
• Incurred high medical bills

First, explore all your options before deciding to request forbearance. 

Typically, evaluating your credit score, monthly cash flow, and long-term home goals is the best way to determine the best course of action to lower your mortgage payment. 

These will allow you to see whether you can lower your payments by refinancing to a lower rate via a better credit score, the ability to make additional payments as your income has increased, and the benefits of removing additional costs today for somewhere you plan to stay for the long-term. 

Other benefits may also apply, but these are typically items to start evaluating in this process.

Rand Millwood, CFP®

How does lowering your mortgage payment affect your long-term financial goals?

Here are some of the most common benefits and drawbacks to lowering mortgage payments.

Pros

• Less financial strain

  Avoid the risk of cashflow gaps, overdraft fees, and late payments.

• Build cash savings

  Build leftover cash into monthly savings for emergencies and employment gaps.

• Pay off more expensive debt

  Extra money can pay down higher-interest debts, such as credit cards, which average nearly 23%.

• Avoid delinquency

  Affordable payments help avoid late payments, and potential foreclosure.

Cons

• More interest

  Paying off debt as soon as possible is always a smart goal. Loan modification and refinance delay your scheduled payoff. Extensions, including through forbearance, can cost you more interest and affect your ability to manage on a fixed income or save for retirement.

• Greater challenge building equity

  Tapping into equity, with cash-out refinance, for example, means losing equity that takes time to rebuild.

• Unpredictable repayment

  With options such as home equity agreements, if your home’s value significantly appreciates, you could repay more than you borrowed.
  

There is no black and white in personal finances. Don’t hesitate to seek advice from a reputable financial advisor or professional.

Also, consider these less risky options:

• A higher-paying job or promotion
• Switching careers
• Downsizing or renting

Renting an empty room could take weight off your shoulders. But opening your home to anyone is a big deal. So if you’re considering a roommate, do your due diligence. 

Screening sites, such as HomeShare Online, help vet potential roommates. If you’d rather have a more hands-on approach:

• Rely on word of mouth from friends.
• Google potential roommates to weed out suspicious characters.
• Verify employment with pay stubs.
• List your must-haves and non-negotiables.
• Interview and ask questions reflecting your list.

Reducing or eliminating any other high-cost debts would often be a better option than lowering your mortgage payment when prioritizing how to cut expenses.

You may be able to refinance your home with a slightly higher mortgage amount and use funds to pay off credit cards or personal loans that have much higher interest rates and monthly payments. 

While this may slightly increase your current monthly mortgage payment, it is likely to lower your total monthly payments, freeing up cash flow for other expenses or paying additional amounts on your mortgage, thus reducing long-term interest paid.

Rand Millwood, CFP®

FAQ

What is the difference between refinancing and recasting a mortgage?

Refinancing and recasting are different ways to lower your mortgage payment. Refinancing involves replacing your loan with a new one, typically to secure a lower interest rate, extend the loan term, or switch loan types (such as moving from an adjustable to a fixed-rate mortgage). 

It requires closing costs, a new credit check, and an appraisal. Refinancing can make sense if current interest rates are lower than when you took out the loan, or if you want to alter the structure of your mortgage.

Recasting keeps your current loan in place but adjusts your monthly payment based on a lump-sum payment you make toward the principal. Your interest rate and loan term remain the same. 

This option has minimal fees and doesn’t require a credit check or an appraisal, making it simpler and more cost-effective if you have extra funds to reduce your principal balance. Recasting works best to lower monthly payments without the costs and complexities of refinancing.

Can I cancel my PMI if I haven’t reached 80% LTV?

Canceling PMI before reaching the 80% LTV threshold under certain conditions is possible. 

Lenders typically remove PMI automatically when your loan balance reaches 78% of your home’s original value, but you can request cancellation once your LTV hits 80%. If you haven’t achieved 80% through regular payments, you can take steps to cancel PMI early. 

One option is to request a new appraisal, especially if your home has appreciated significantly since you purchased it. A higher appraisal could lower your LTV ratio and allow you to cancel PMI. 

Making extra payments toward your principal can also accelerate reaching the 80% LTV threshold. It’s important to formally request PMI removal from your lender and be prepared to provide documentation, such as the new appraisal, to support your case.

What are the fees involved in recasting a mortgage?

Most lenders charge between $200 and $500 for the service, which can vary by lender. To be eligible for recasting, you must also make a lump-sum payment toward your principal—often at least $5,000, depending on the lender’s requirements.

Recasting doesn’t come with the higher closing costs associated with refinancing and doesn’t involve a credit check, making it a low-cost option for reducing your mortgage payment if you have extra cash.