Not everyone wants to refinance
Mortgage payments are the largest monthly expense for most Americans. A refinance can lower those monthly payments and free up your household budget. But with mortgage rates back at historic norms, mortgage refinancing won’t make sense for everyone.
The good news is that there are ways to save on your mortgage payment even without a refinance. And there are also ways to save on total interest over the life of your loan. Here’s what to do.
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Ways to lower your monthly payment without a refinance
A mortgage refinance replaces your current loan with a new one. The new loan typically has a lower rate and smaller monthly payment — but it also comes with closing costs. And in today’s interest rate environment, lowering your rate may not be an option.
Fortunately, there are strategies you can use to lower your monthly mortgage payment without changing your current loan or incurring closing costs.
Here are four ways to lower your mortgage payment without refinancing.
1. Cancel your mortgage insurance
If you put down less than 20% when you bought your home, odds are you’re paying for private mortgage insurance (PMI). Most homeowners who used a low-down-payment conventional loan have to pay PMI until their loan amount is paid down ot 20% of the value of their home.
Once your loan amount falls to 80% of your home’s value, your lender no longer needs the protection of mortgage insurance.
Rising home values can help you reach this magic 80% threshold a lot sooner, and values have risen a lot over the past couple years. You may be in position to cancel your PMI as soon as right now, saving $100, $200, or more each month.
How to cancel PMI:
The first step is to contact your current mortgage lender and ask to have your PMI removed. Your lender will either grant that request or deny it.
If the request is denied and you’d like to proceed, you have three options available:
- Request a fresh home appraisal that will more accurately reflect your home’s value. If the new value pushes your loan-to-value ratio (LTV) below 80%, your lender will have to cancel PMI upon request. Note, you’ll have to pay for the appraisal out of pocket
- Reduce your LTV to 80% with a lump sum payment and then request PMI cancellation. Federal law requires your lender to cancel PMI, upon borrower request, at 80% LTV
- Add a value-enhancing feature to your home and have the home appraised again. Again, if the LTV falls to 80%, your lender will have to cancel PMI if you request it
Note that canceling PMI may require a phone call to your bank. Take notes on each call in case you speak with multiple representatives of the bank.
Also note that most modern USDA and FHA loans come with built-in mortgage insurance that can only be canceled by refinancing into another loan type. VA loans do not charge annual mortgage insurance premiums, so there’s no PMI to cancel.
2. Request a loan modification
If you cannot afford your current mortgage payments and are in danger of falling behind, contact your lender as soon as possible. You may be eligible for loan modification.
Loan modification changes your loan terms without a refi, and lenders often work to help homeowners who need it. After all, your loan servicer doesn’t want to foreclose since it would stop earning money from your mortgage interest and have to sell your home.
The government also gives banks incentives to participate in modification programs, so don’t overlook this option. And, try not to wait until you’ve already missed payments before you request modification.
3. Lower your property taxes or homeowners insurance
Your monthly house payment covers more than your mortgage debt. Most mortgage payments also include homeowners insurance premiums and property taxes. If you can lower these annual taxes and premiums, your mortgage payment will go down.
First, check with your county or city government about appealing your real estate tax assessment. This assessment shows the value of your property from the point of view of your local government. Governments base your tax bills on the value of your home. If the county agrees to lower your assessment, your tax bill should go down.
You may be able to lower your homeowners insurance premiums by shopping around for a new policy. Insurance rates can vary a lot by provider.
Raising your deductible should also lower your insurance rate which will lead to a lower monthly mortgage payment. But be careful: Make sure your insurance policy still protects your investment from fire, storms, and other perils.
If you can lower these bills, ask your loan servicer to re-analyze your escrow account based on the smaller bills. You should see a lower monthly house payment.
4. Recast your mortgage
Recasting a mortgage works only for conventional loans, and only if you have a lump sum of cash available.
Here’s how it works: You’d pay the cash onto your principal loan balance and then ask your lender to recalculate your mortgage payment based on the lower balance.
Let’s say, for example, that you just inherited $75,000 and owe $200,000 on your home. You have 20 years left on your 30-year mortgage, and your current house payment is $1,350.
By paying down your balance by $75,000 and recasting your new loan balance across the remaining 20 years of your loan, your payment could go down to about $900.
How is mortgage recasting different than simply putting the money onto your principal? Unless you recast, your payment amount would remain the same until you pay off the loan, even if you lowered the principal balance significantly.
Lenders charge upfront fees for a mortgage recast, but the upfront fee should be lower than closing costs on a mortgage refinance.
Plus, since you’re not refinancing, you can keep your loan’s current interest rate which may be lower than today’s average refinance rates.
Ways to lower your total interest cost without refinancing
At its best, mortgage refinancing saves you money in long-term interest charges while also creating lower monthly mortgage payments going forward.
But there are ways to save on long-term interest while keeping your existing home loan — and its rate — in place.
In fact, since amortization schedules front-load interest charges, you may save more by keeping your current loan anyway.
The methods below won’t lower your payment today, but they can yield significant long-term savings by chipping away your loan’s principal balance.
1. Make one extra payment per year
During any time of the year, it’s your right to “prepay” your mortgage. You accomplish this by making a second, separate payment to your lender in addition to your regularly-scheduled payment.
Making just one extra payment per year can reduce a new 30-year mortgage’s length by more than four years.
Multiply four years of payments by your monthly principal and interest due, and you’ll get a sense for how much money making one extra payment per year can save you.
2. Round up your mortgage payment each month
Each month, when your mortgage payment is due, “round up” to the nearest hundred dollars. If your payment is $1,450, send your lender $50 more.
When your payment is received, your lender will apply the extra cash paid to your principal balance, which reduces what you owe. This shortens your loan’s overall length and, again, saves you money.
Rounding up won’t have the same power as making an extra payment annually, but you’ll put a sizable dent into your long-term costs.
Rounding up can shorten your loan term by two years or more, depending on your loan size and how many years remain in your term.
3. Enter a bi-weekly mortgage payment plan
Many lenders offer a bi-weekly mortgage payment plan through which you can make payments on your loan every other week instead of once per month.
There are 52 weeks in the year, which equates to 26 “half-payments” or 13 “full-payments.” That makes bi-weekly programs similar to making one extra payment per year.
FAQ: Reducing your mortgage payment without a refinance
Yes. A loan modification or a mortgage recast could lower your monthly payments without requiring a refinance and its closing costs. Or, you may be able to lower your payments by canceling your private mortgage insurance, by finding cheaper homeowners insurance, or by appealing your local government for a lower real estate tax assessment.
By itself, paying down principal does not reduce monthly payments. But it does save a lot in long-term interest while growing home equity faster. To lower your payments after paying down principal, ask your loan service for a mortgage recast.
Get in touch with your loan servicer before you get behind — or get farther behind — on your loan payments. Borrowers with up-to-date loans tend to have more relief options. The servicer may offer forbearance or modification programs.
What are today’s mortgage rates?
There are ways to lower your house payment without refinancing. But if you’re trying to exit an adjustable-rate mortgage — or if you need to take cash out of your home — you’ll still need a new home loan.
Today’s average refinance rates are higher than the record lows of 2020 and 2021. But actual rates are borrower- and lender-specific.
By shopping around, you still might find a lower interest rate than today’s average rates, especially if you have a strong credit score, low debts, and plenty of equity in your home.