Find out which strategy a loan expert says is the easiest for cutting costs over the long term.
With inflation tightening household budgets and rising rates making refinancing less attractive, it’s no wonder many homeowners are seeking other ways to lower their mortgage payments.
Here are eight smart strategies — straight from mortgage professionals — that could provide significant savings in the short term, long term or both. Prospective buyers curious about the costs of homeownership may want to take notes too.
1. Cancel your mortgage insurance
Mortgage insurance is a fee that many homeowners pay every month with their mortgage payments. This fee protects your lender’s interest if you’re unable to repay your loan. It’s typically charged if you bought your home with a down payment of less than 20% of the purchase price or refinanced into a new mortgage with less than 20% equity.
Canceling can be challenging, but if you’re eligible, it will lower your payment, says Juan Rodriguez, a Zillow mortgage loan officer in Irvine, Calif.
Whether you can remove your mortgage insurance depends on:
- The type of loan you have.
- The percentage of your down payment or equity when you obtained your loan.
- The amount you currently owe as a percentage of your home’s current value.
- Whether you have a second mortgage or a home equity line of credit.
- Your lender’s cancellation policies.
To request cancellation, you may have to pay for an appraisal. That could cost as little as $150 for an automated valuation or as much as $500 or more for a full appraisal.
2. Make an extra payment
Making an extra mortgage payment won’t lower your monthly payment, but it will cut the total interest you’ll owe over the term of your loan. Making an extra payment every year could result in substantial savings and enable you to pay off your loan before the term ends.
“This is the easiest strategy to lower the overall interest you’ll pay over the long term,” Rodriguez explains.
Some homeowners choose to make one extra payment in the same month every year. Others make payments every two weeks instead of once a month. Bi-weekly payments also result in one extra payment every year.
3. Recast your mortgage
Making a large lump sum payment and asking your lender to restructure, or “recast,” your mortgage is another way to lower your mortgage payment.
“Recasting reduces your payment and keeps your loan term going at the same number of months,” Rodriguez explains.
You won’t pay off your loan sooner, but you’ll owe less principal as part of your monthly payment.
Most lenders will allow you to recast once during your loan term, Rodriguez says.
Your lump sum can come from any source, such as savings, a gift, an inheritance, a bonus or the sale of other assets you own.
You may have to pay a fee, typically about $150 to $250.
4. Extend your mortgage term
Stretching out your mortgage payments over a longer term will lower your payment, but you’ll owe more interest over that longer term.
One way to extend your term is to refinance with a new 30-year loan. Another way is to contact your lender and ask for a loan modification.
To be approved, you’ll typically need to show you suffered a hardship that impacts your ability to make your payment. Examples include divorce, job loss, illness, disability or the death of a family member.
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5. Shop around for lower insurance rates
If you pay for your homeowner’s insurance through your mortgage payment, shopping for less costly insurance could lower your payment.
The challenge is to find not only a lower rate, but also an equally reputable insurer and similar coverage.
Raising your deductible will also typically lower your rate. With an increased deductible, your out-of-pocket cost will be higher if you file a claim.
6. Challenge your property tax assessment
Prove to the local tax assessor they overvalued your home for tax purposes, and you may owe less tax. The process to contest your home’s valuation can be stressful, but if the overvaluation is significant, the savings may be worth the effort.
You’ll need to research the rules in your county and gather data to show your home’s assessed value is higher than recent sales prices of comparable homes. You may also have to pay for an appraisal or reassessment. The timeframe to file an appeal can be short, so be sure to mark your calendar well in advance.
Caution: Once you file, the assessor may decide your home’s valuation is too low, rather than too high. If that happens, your tax bill could go up.
7. Rent out part of your home
Renting out an unused guest house or bedroom in your home doesn’t directly affect your mortgage but could provide an additional source of income for you to make your monthly payment. If you have more living space than you need, you may want to consider renting some of it out.
8. Talk to a mortgage loan officer
Although the current rate environment generally doesn’t favor refinancing, it’s still a good idea to get professional advice from a mortgage loan officer.
“Your mortgage loan officer can do an overall analysis of your current loan, along with other liabilities you have and take into account personal matters, like your retirement plans, financial standing and changes in your family status,” Rodriguez says.
Although loan officers are not financial planners, and do not provide financial advice, that analysis may show at least a few good ways you could lower your mortgage payment.