How to Lower Your Monthly Mortgage Payment: 5 Tips

Is your mortgage payment taking a bigger bite out of your budget than you can afford? Most finance experts recommend limiting your monthly housing costs to no more than 30% of your gross income, to leave enough to cover other expenses and goals.¹

While home values have gone up in recent years across the country, so have mortgage payments. In October 2023, the median 30-year fixed-rate mortgage payment was $2,199, compared to the $1,200 median across all U.S. homeowners.^2,3

If you’re paying more than you’d like, read on for strategies and tips on how to lower monthly mortgage payment amounts. 

Why Lower Your Monthly Mortgage Payment?

For many Americans, the process of debt consolidation begins with chipping away at your mortgage, but enjoying lower mortgage payments isn't just about freeing up money in general. Building safety and security for your family means governing your expenses at every stage of life, and allocating dollars where they benefit you the most. 

When you reduce your fixed expenses, like mortgage payments, you can put that money toward: 

• Saving for higher education, retirement, and other goals
• Growing your emergency fund 
• Paying down high-interest debt

Methods to Lower a Monthly Mortgage Payment

There’s more than one way to scale a fish. If you’re looking at your total monthly housing costs, you can try to whittle it down by: 

• Reducing your homeowners insurance rate through discounts and shopping around
• Making home and behavior modifications to reduce your utility bills
• Appealing a property tax rate with the assessing office

However, when you focus specifically on mortgage payments, here are the most effective ways to lower them: 

#1: Refinance for a Lower Interest Rate

In addition to the cost of your home and the length of your mortgage term, your loan’s interest rate is what determines how much you pay each month. Small changes to your interest rate can make a real difference in your monthly payments. But can you refinance a fixed rate mortgage? Keep reading to see if that’s the best route to extend your specific loan term. 

For example, a 30-year fixed-rate mortgage for a $350,000 home loan will have monthly payments of⁴:

• $1,987 at 5.5%
• $2,212 at 6.5%
• $2,447 at 7.5%

For decades, refinancing when interest rates fall has been the top method to achieve lower monthly payments and lower the total interest cost over the life of a loan. Average rates for a 30-year mortgage peaked in 1981 at 18.37%, dropping until reaching a record low of 2.65% in 2021.⁵

However, since 2021, they’ve been on the rise, hitting 7.79% in October 2023 before dipping to 6.74% in March 2024. If you took out a mortgage within the past 20 years, your current interest rate is probably less than today’s average. 

Consider these three factors before refinancing: 

• Closing costs – Upfront closing costs on a refinance are similar to what you’d pay on a new mortgage: about 2% – 6% of the loan amount.⁶

• Qualification – The rate a lender offers depends on multiple factors, including your borrower profile. If factors such as your credit score and history, debt-to-income (DTI) ratio, income level and stability, assets, and employment history have improved since your original mortgage, you’ll have more opportunity to secure a better loan offer. 

• Rate comparison – How does your current loan rate compare to what rate you can land today? In the past, experts have recommended a one or two percent drop minimum to make refinancing worth it, but depending on how long you plan to remain in the home before selling, it’s possible that a half- or even quarter-percent drop could pay off.^7,8

Shop around, compare lenders, and use a mortgage calculator to do the math carefully before committing to a refinance. 

#2: Extend Your Mortgage Term

Your mortgage term—how long you have to pay off your loan—is another key factor in calculating your monthly payment. There’s about a 30% difference between the average payment on a fixed-rate mortgage of 30 years ($2,883) versus a 15-year term ($3,759).⁹

Since you’re locked into the current term contractually, you’ll need to appeal to your lender and investigate their loan options. Typically, loan modification programs are available for conventional mortgages, but they may have: 

• Hardship requirements that mean you need to prove financial need for the change
• Loan-to-value (LTV) ratio limits, typically 80% or less
• Borrower requirements such as provable income and a solid repayment history

A major drawback to term extensions is that you’ll end up paying more mortgage interest over the life of the loan. If we revisit the statistic above using average monthly payments:^4,9

• $2,883 interest payment over 30 years means paying $596,821 in total interest
• $3,759 interest payment over 15 years means paying $235,151 in total interest

#3: Make a Large Lump-Sum Payment

Short of winning the lottery, how do you pay off your mortgage early? If the question is “how fast can I pay off my mortgage?” in addition to lowering monthly costs, one answer is to recast your loan with a lump-sum payment. 

To do this, you’ll work with your current lender to apply a one-time payment to your loan principal, and they’ll recalculate your monthly payment based on the new, lower balance. By reducing the principal without shortening the loan term, your monthly payments will be smaller than they are with your current mortgage. (If you simply make a lump-sum payment to your principal without recasting the loan, your payments will remain the same, and you’ll end up paying off the loan early.)

There is a fee to complete a mortgage recast, but at $150 – $500, it’s much less than the thousands of dollars for refinance closing costs.¹⁰ You’ll also be able to keep your current loan interest rate with a recast instead of a mortgage refinance.

#4: Remove Private Mortgage Insurance (PMI)

Still paying PMI on your mortgage? Getting rid of it could drop your monthly mortgage payment by hundreds of dollars. With an average annual cost of 0.58% to 1.86% of the original loan amount, this means¹¹: 

• $97 – $310 per month on a $200,000 loan
• $169 – $543 per month on a $350,000 loan
• $242 – $775 per month on a $500,000 loan
  Private mortgage insurance typically applies to mortgages when a borrower makes a down payment of less than 20%. It protects the lender but is paid by the borrower, theoretically, until the borrower achieves at least that 20% level of home equity. 

However, consider: 

• Early payments go toward interest (not principal), so you could be paying PMI for years
• Lenders don’t automatically cancel PMI until your equity reaches 22% (not 20%)
• PMI rates vary based on credit score, so are often highest for those struggling the most

To get rid of your extra payments in PMI, you can: 

• Send a letter of request to your lender as soon as your equity reaches 20%
• Get an appraisal to recognize appreciation in value such that you now own 20% equity
• Make additional payments toward principal until you reach 20% equity

#5: Choose a Sale-Leaseback

How about lowering your monthly mortgage payment to zero? Putting your home up for sale and boxing up belongings isn’t the only way to convert your home equity to cash and pay off a mortgage loan for good. 

A residential sale-leaseback combines the sale of your home with a locked-in lease option. You’ll switch from owner to renter seamlessly, all while avoiding the hassle of a traditional home sale. The buyer provides a guaranteed first right of residency that permits you to remain in your home so long as you pay rent and comply with the lease agreement. 

At the same time, you’ll get rid of some of the headaches and costs of homeownership including: 

• Property tax payments
• Homeowners liability insurance
• Major repairs

Sale-leasebacks can be part of a transition plan to bridge a gap before moving to a new home, or they also last for years or a lifetime. They allow homeowners greater flexibility to choose how to access and use their home equity and the property itself. 

Choosing the Best Strategy 

There are multiple ways to lower your monthly mortgage payment, each with pros and cons depending on where you’re at in your homeownership and wealth-building journey. While you may not have control over every factor, such as the real estate market and prime rate changes, you can refinance or request a loan modification, a loan recasting, or a cancellation of your PMI policy.

Or, you can opt out of mortgage payments altogether. With Truehold's sale-leaseback, you can sell your home without having to move. You’ll be able to pay off the remainder of your mortgage, access the full value of your home equity, and cut homeowner’s insurance, property tax, and major repairs from your budget. 

Ready to learn more? Our advisors can walk you through the process and answer your questions to figure out if a Truehold sale-leaseback is the right fit for you. Call us today to get started.

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Sources: 

1. CNBC Make It. Use the 30% and 28/36 rules to figure out how much you should be spending on housing. https://www.cnbc.com/2021/07/14/how-much-of-your-income-you-should-spend-on-housing.html‍
2. Bankrate. Average monthly mortgage payment. https://www.bankrate.com/mortgages/average-monthly-mortgage-payment/‍
3. The Balance. What Is the Average Monthly Mortgage Payment? https://www.thebalancemoney.com/average-monthly-mortgage-payment-4154282‍
4. Bankrate. Loan Repayment Calculator. https://www.bankrate.com/loans/loan-repayment-calculator/‍
5. FRED.  30-Year Fixed Rate Mortgage Average in the United States. https://fred.stlouisfed.org/series/MORTGAGE30US‍
6. CNN Underscored. How much does it cost to refinance a mortgage? https://www.cnn.com/cnn-underscored/money/how-much-does-it-cost-to-refinance-a-mortgage‍
7. Investopedia. When to Refinance Your Mortgage. https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/‍
8. Bankrate. When should you refinance your mortgage? https://www.bankrate.com/mortgages/when-to-refinance/‍
9. Business Insider. Average mortgage payment by state, city, and year. https://www.businessinsider.com/personal-finance/average-mortgage-payment‍
10. Forbes Advisor. Mortgage Recasting: Can It Save You Money? https://www.forbes.com/advisor/mortgages/mortgage-recasting/‍
11. Nerdwallet. PMI Calculator: How Much Is Mortgage Insurance? https://www.nerdwallet.com/article/mortgages/pmi-calculator

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