With mortgage rates near 7%, many homeowners are looking for ways to shrink their monthly payment. There are eight main ways to lower a mortgage payment: refinance, recast, remove mortgage insurance, appeal your property tax, shop your home insurance, extend the term, ask for a loan modification, or rent out part of your home. Here is how each works and what it costs.
8 ways to lower your mortgage payment
| Method | Typical saving | Main cost or catch |
|---|---|---|
| Refinance to a lower rate | Can be hundreds a month | Closing costs of about 2% to 5% of the loan |
| Recast after a lump-sum payment | Depends on the amount paid down | Small fee; needs a large lump sum |
| Remove PMI | Often $50 to $200+ a month | Need 20% equity |
| Appeal property tax assessment | Varies by area | Paperwork; not always successful |
| Shop homeowners insurance | Often meaningful | Check coverage carefully |
| Extend the term | Lower payment | More total interest |
| Loan modification | Varies | Only for financial hardship |
| Rent out a room or unit | Rental income offsets the payment | Landlord duties, local rules |
1. Refinance to a lower rate
A refinance replaces your loan with a new one. It makes sense when the new rate is low enough that the monthly saving pays back the closing costs within a few years. Divide the closing costs by the monthly saving to get your break-even point in months. If you plan to move before then, it is not worth it. Rates are high right now, as covered in mortgage rates near 7%, so this works best for people who bought when rates were even higher.
2. Recast your mortgage
A recast keeps your rate and term but recalculates the payment after you pay down a large chunk of principal, often $5,000 or more. Lenders usually charge a small fee, far less than refinancing. It is a good fit if you receive a bonus, inheritance or proceeds from selling another home.
3. Get rid of mortgage insurance
On a conventional loan, you can ask your lender to cancel private mortgage insurance (PMI) once you reach 20% equity based on the original value, and it must end automatically at 22%. If your home has risen in value, a new appraisal may get you there sooner. FHA mortgage insurance is harder to remove and may require refinancing into a conventional loan.
4. Appeal your property tax
If your escrow payment includes property tax, a lower assessment lowers your monthly bill. Compare your assessment with similar homes nearby; if yours is out of line, file an appeal by your local deadline.
5. Shop your homeowners insurance
Insurance premiums have climbed sharply in many states. Getting quotes from several insurers, raising your deductible or bundling with car insurance can cut the escrow portion of your payment. Make sure the cheaper policy still covers what you need.
6. Extend the term
Refinancing a 15-year loan into a 30-year loan lowers the payment but adds a lot of interest over time. Compare both in 15 vs 30 year mortgage. You can still make extra payments on the longer loan when money allows.
7. Ask for a loan modification
If you are struggling after a job loss, illness or other hardship, call your servicer before you miss payments. A modification can change the rate, term or both. A HUD-approved housing counselor can help for free.
8. Rent out space
Renting a room, basement suite or garage can cover part of the payment. Check local rules, your insurance and your loan terms first.
Run the numbers on any option with our mortgage calculator. Still deciding whether to buy? See how much house can I afford and rent vs buy.
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Frequently asked questions
What is the fastest way to lower my mortgage payment?
Removing PMI or shopping your homeowners insurance can lower the payment within weeks. Refinancing takes longer and costs more upfront.
Does a recast lower my interest rate?
No. A recast keeps the same rate and term; it only lowers the payment because you owe less.
Is it worth refinancing for a 1% lower rate?
Often yes on a large balance, if you stay in the home past the break-even point. Divide closing costs by the monthly saving to check.
This article is general information, not financial advice.
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