How to Lower Your Mortgage Payment Without Refinancing

Published by Gavin Jacob , Last Updated On : Jul 07, 2023

Approximately seven out of ten Americans with a monthly mortgage payment make sacrifices for housing. These payments constitute the greatest monthly expenditure. Refinancing helps you reduce this cost, but for many, it is not the most suitable option. This is largely due to high mortgage rates. So, it makes sense to learn how to lower your mortgage payment without refinancing.

Fortunately, there isn’t one but several ways to reduce your mortgage payment in this way. The most popular ones include mortgage recasting, canceling your mortgage insurance, and making biweekly payments. Let us explore all these different ways in detail below.

Key Takeaways

• Mortgage refinancing isn’t always suitable, even with low mortgage rates. It’s because refinancing takes a lot of time and is expensive at closing.
• Reducing mortgage payments without refinancing needs you to lower any part of the mortgage bills. Reducing either of them lowers your payment.
• Mortgage recasting is effective but suited to only those with adequate cash reserves.
• Requesting a loan modification will help you lower monthly mortgage payments. However, it will also reduce your credit score.

How to Lower Your Mortgage Payment Without Refinancing

Often, refinancing may not be a suitable option for those with specific short-term financial objectives. Mortgage bills consist of insurance, taxes, interest, and principal. Consequently, if you can lower any of those, your mortgage payment would reduce without the need for refinancing.

Mortgage recasting

This option is suitable for those with a lump sum of cash. If your lender is fine with it, you can make a single big upfront payment along with a couple hundred dollars of recasting fee. Your lender will compute your payment schedule over the same term. By paying this amount, you have reduced your principal. Thus, your mortgage payment also goes down.

Let us understand it better with an example. Suppose you owe $300000 on your home. You have an interest rate of 4%, and you make $1430 as monthly mortgage payments. The total interest over the loan’s term is $215,600. But if you have an amount of $40,000 and give it as a lump sum payment along with a $200 recast fee, your mortgage payment will significantly drop.

The new balance will be $260000 with the same interest rate, but the monthly payment will be $1240. You will save $190 monthly. The total interest over the loan’s term will amount to $187,050, and the total interest savings will be $28,550.

DO REMEMBER: You may need a minimum lump sum of between $5,000 to $10,000. Ensure you don’t empty your cash reserves for making the payment at once. Check with your financial advisor if it is the right course of action for you.

Cancel your mortgage insurance

You might have private mortgage insurance if you’ve put down below 20% on your house. It significantly increases the mortgage payment you pay monthly. So, it is best to ask your lender to eliminate private mortgage insurance from your loan after you have 20% equity in your house.

Once you have reached a stage where your loan is below a majority (80%) of the house’s value, your lender doesn’t require the shield of mortgage insurance. This, in turn, will reduce your monthly mortgage payment.

POINT TO NOTE: If you have an FHA loan, it will be challenging to reduce the mortgage premiums. To reduce these premiums, put down a minimum of 10% at closing. Then, wait for 11 years. If you don’t want to go down this route, refinance into a traditional mortgage after paying down 20% of your house’s value.

Pay biweekly

Still interested in knowing how to lower your mortgage payment without refinancing? Try distributing your payments in two parts and paying biweekly. Although this method will take some time, you will eventually save money. It will also enable you to reduce your loan term.

Consider this. In a year, you will make 26 biweekly mortgage payments. This converts to 13 full payments. If you begin paying biweekly upon borrowing the loan and stick to it throughout the term, you will cut over four years from repayment tenure.

Appeal your property taxes

Taxes on property are subject to change yearly according to the assessment of your home value. If the taxes increase, so will your monthly mortgage payment. So, if your property has been assessed wrongly, you will be required to pay a greater tax.

You can appeal your property taxes through the office of your local assessor. Go through the data about your house on the assessor’s file. If you can spot any discrepancy that indicates that the assessor’s value is overstated, you can appeal your property taxes.

Ask for a loan modification

If you want to know how to lower your mortgage payment because you are certain that you cannot keep up with it, request a loan modification. It modifies your loan terms without refinancing. Your lender wouldn’t have a problem with it since it is better for them than taking possession of your property. Foreclosing on your property will also halt the lender’s mortgage interest.

Your lender will adjust your loan by extending the term or lowering your principal balance. However, this option is available to only those behind their payments or certain they will miss it.

DO REMEMBER: Loan modification is only recommended for dire situations as it comes with many risks. You will need to prove that you are under financial stress. It will considerably lower your credit score.

Make an additional payment every year

Making even a single extra payment can lower your three-decade-long mortgage length by over four years. To find out how even one extra payment annually can save you, multiply four payment years by your monthly interest and principal. So, it is worth looking into the second payment to your lender besides your usual payment.

Closing Thoughts

Refinancing used to be a great option before. But today, with the average refinance rates touching sky-high, it has ceased to remain a compelling choice for many. Use any one or a combination of the methods above to lower your monthly payments without the hassle of refinancing.