How to lower your mortgage payment

Your monthly mortgage payment is typically your largest expense, so even a small reduction can meaningfully improve your financial situation. Whether you're experiencing financial strain or simply want to redirect funds toward other priorities, you have options. This guide will walk through several strategies to help lower your monthly mortgage payment.

Key takeaways:

• Refinancing can reduce your monthly payment by locking in lower interest rates or stretching your remaining balance over a longer repayment timeline.
• Recasting your current mortgage, shopping around for cheaper homeowners insurance, or legally contesting your property taxes can also help you reduce your monthly housing costs.
• If you are experiencing sudden financial trouble, reach out to your loan servicer to discuss assistance options

What makes up your mortgage payment

Let’s start by breaking down exactly what you are paying for each month. A portion of each mortgage payment you make will go toward principal, interest, property taxes, and insurance – often known as PITI. Understanding these components allows you to target the specific areas where you can cut costs.

Principal and interest

The principal is the actual balance of money you borrowed from the lender to buy your home, while the interest is the ongoing fee the lender charges you for borrowing those funds. In the initial years of a traditional amortized mortgage, most of your monthly payment goes toward interest rather than reducing the principal. Because your interest rate dictates the cost of borrowing, it has a big impact on what you owe each month. As a result, finding a way to lower your interest rate can translate into significant savings.

Taxes and insurance

Most lenders require borrowers to maintain an escrow account to cover property taxes and homeowners insurance. Each month, a portion of your overall mortgage payment is set aside in this account. When your local property taxes and annual homeowners insurance premiums come due, the lender pays those bills on your behalf directly from the accumulated escrow funds. Since tax assessments and insurance premiums change every year, fluctuations in your escrow costs can cause your total monthly mortgage bill to climb or fall without any changes to your base loan structure.

Mortgage insurance

If you put down less than 20% of the purchase price when buying your home, your lender likely required you to pay for mortgage insurance. For conventional loans, this is known as private mortgage insurance (PMI), while Federal Housing Administration (FHA) loans require a mortgage insurance premium (MIP). This fee serves as a financial safety net for the lender in case you default on the loan. It does not protect you, but it adds an extra recurring monthly charge to your statement that can often be removed once you cross key equity thresholds.

Now that we’ve broken down what’s often included in a mortgage payment, let’s look at ways to lower your mortgage payment.

1.  Explore loan assistance programs

State and local programs can help you whether you need short–term relief or longer–term support. Programs vary depending on where you live, but it’s worth checking out what’s available.

Here are a few places to find government mortgage assistance:

• State or local government websites detail their programs for homeowners who need help with mortgage payments.
• Local nonprofit organizations can connect homeowners with mortgage–relief programs and provide support throughout the application process.
• Reach out to a HUD housing counselor, who can walk you through your options and help you figure out what might work best for you.

2.  Refinance to a lower interest rate

One common way to reduce your monthly mortgage payment is to refinance¹. Refinancing means replacing your current mortgage with a new one with better terms, such as a lower interest rate or a different repayment term. With a refinance, you apply for a new mortgage based on your home’s current value. You use the funds from your new loan to pay off your existing mortgage and start making payments on the new loan.

Getting a new loan with a lower rate can reduce your monthly payment and may save you on overall interest. Here are the three main ways refinancing can reduce your monthly mortgage payment.

• Watch for lower interest rates: If interest rates have dropped since you took out your mortgage, it’s worth talking to your lender about your refinancing options. They can help you review refinance offers and the steps you need to take to lock in a lower rate and monthly payment.
• Buy down your interest rate: You can buy down your interest rate using discount points, or mortgage points, when refinancing. Typically, one discount point costs 1% of your loan amount and reduces your interest rate by 0.25%, though the exact terms vary by lender.
• Extend your loan term with a refinance: If you have been paying down your mortgage but find yourself needing immediate breathing room, refinancing the remaining balance into a fresh 30–year term spreads the debt over a much longer period. While this reduces your monthly payment, stretching out a loan balance means you will remain in debt longer and will pay substantially more in total interest over time.

3.  Recast your mortgage

Mortgage recasting is a way to lower your monthly payments on a conventional loan by making a large, lump–sum payment toward your principal balance. In turn, your lender recalculates your future monthly payments based on this new, lower balance. Unlike with refinancing, your original interest rate and remaining loan term do not change. As result, this is a way to lower your monthly expenses and free up space in your budget.

Here are important things to understand before recasting your mortgage:

• Lenders’ policies vary: Not all lenders offer mortgage recasting, and those that do may require a minimum lump–sum payment – usually $5,000 or more.
• There are strict home equity requirements: You’ll typically need a specific amount of equity – a minimum of 20% – before you can recast.
• No government–backed loans: This option is usually available only for conventional loans.

Mortgage recast requirements

While a recast is simpler than a refinance, it comes with specific rules and limitations:

• Lender policies: Not all financial institutions offer recasting, and those that do typically charge a modest administrative fee – usually around $250.
• Minimum lump–sum thresholds: Lenders generally require a minimum principal payment to trigger a recast, often starting at $5,000 or more.
• Loan type exclusions: Recasting is typically only available for conventional loans. Government–backed loans like FHA, VA, and USDA mortgages² are generally ineligible under federal rules.

4.  Remove mortgage insurance

When you put less than 20% down on a conventional loan, lenders require you to pay for private mortgage insurance. PMI protects the lender if you default on your loan and typically costs between 0.5% – 1.5% of the original loan amount. However, once you’ve built enough equity, you can remove PMI and lower your monthly housing costs. All FHA loans require you to pay for mortgage insurance.

How to cancel PMI

You can remove private mortgage insurance (PMI) on conventional loans once you’ve built at least 20% equity. Depending on your loan size, getting rid of PMI could save you hundreds of dollars every month.

• Option 1: Request early cancellation by submitting a written request to your lender once your principal balance drops to 80% of your home's original appraised value. You will typically need a good payment history and proof that no secondary liens exist on the property.
• Option 2: Wait for automatic PMI termination. By law, your lender must automatically cancel your PMI once your balance reaches 78% of your home’s original value, if your payments are current.
• Option 3: Order a new home appraisal to prove your equity has increased. If your home's value has gone up due to market appreciation or major renovations, a new appraisal might show you have reached 20% equity. This would allow you to cancel PMI ahead of schedule.

Getting rid of FHA mortgage insurance

Mortgage insurance premiums (MIP) are specific to Federal Housing Administration (FHA) loans. Removing this expense can help you save money each month. However, the guidelines on removing MIP that are set by the Department of Housing and Urban Development (HUD) depend heavily on your original down payment and origination date.

• Option 1: Wait for your premiums to automatically drop off after 11 years. This applies if your FHA loan originated after June 3, 2013, and your down payment was 10% or more.
• Option 2: Remove FHA mortgage insurance by refinancing. If you put down less than 10%, your MIP stays for the life of the loan, so the only way to eliminate it is to refinance your mortgage into a conventional loan once you have at least 20% equity.

5.  Lower your homeowners insurance rates

Homeowners insurance covers losses and damage to your home in case of unexpected events such as a fire or a burglary. Most lenders require homeowners to insure the property to protect their investment. Since your insurance premium is a part of your monthly mortgage payment, finding a lower rate on insurance can reduce your housing costs.

Here are some ways reduce what you have to pay for homeowners insurance:

• Compare quotes. Reach out to a few different insurance companies and ask for quotes based on your current coverage levels.
• Ask about discounts. Some insurers offer discounts if you have a security system or a newer roof. You may qualify for discounts based on your profession or if you buy multiple insurance policies from the same company.
• Review your coverage. Make sure you’re not overinsured. You may be paying for coverage you don’t need.
• Increase your deductible. A higher deductible can reduce your monthly premium. Just make sure you can afford to cover the deductible if you need to file a claim.

6.  Appeal your property taxes

Property taxes are paid to your local government to cover the cost of infrastructure, public schools, parks, roads, and emergency services. Many homeowners pay property taxes through an escrow account with their mortgage lender. Like insurance, property taxes are included in your monthly payment, so if your property taxes go down, your monthly mortgage payment will too.

The amount you pay in property taxes depends on how much your home is worth – known as its assessed value – and the tax rate in your area. If you think your home is overvalued, you might be able to file an appeal and reduce your tax bill.

Here’s how to get started:

• Look at your property tax statement and check for mistakes, like the wrong square footage or an incorrect number of bedrooms.
• Research recent sales of similar homes in your area to see how your home’s value compares.
• Visit your local tax authority’s website to find the appeal deadline and instructions.
• Collect supporting documents, such as recent appraisals, photos, and comparable sales.
• Submit your abatement request, which you usually can do online, by mail, or in person.

Seek property tax exemptions

A property tax exemption reduces your tax bill by shielding a certain portion of your home's assessed value from being taxed. Many states provide these exemptions to specific groups, such as senior citizens, military veterans, and individuals with disabilities. Because property taxes are managed locally, you can check your county or state tax assessor's website to explore available relief programs and determine if you qualify.

7.  Apply for payment assistance

If you're having trouble keeping up with your mortgage payments, your servicer may have options to help you avoid default or bring your loan current. If you have experienced a financial hardship like a natural disaster or loss of income, your servicer may be able to qualify you for a forbearance. A forbearance plan temporarily reduces or pauses your mortgage payments. Keep in mind that forbearance doesn't reduce or eliminate the amount you owe. You'll still owe the full amount which has been reduced or paused during the plan, and you will need to pay it once the plan ends. Forbearances can have a negative impact on your credit because your full mortgage payment is not being made monthly, be sure you understand the pit falls of a forbearance before entering.

If you're unable to pay back the full amount which was reduced or paused during the forbearance term in a lump sum, your servicer may offer programs to bring your account current. Depending on the type of program these options will likely be credit impacting. For special circumstances, such as a natural disaster, your servicer may have non-credit impacting options.

8.  Apply for permanent payment assistance for your mortgage

If you are facing a financial hardship and don't qualify for a forbearance or have recently exited a forbearance and need assistance bringing your account current you can apply for additional payment assistance programs. No payment assistance programs are guaranteed to lower your monthly payment, but a loan modification may lower your monthly payment. A loan modification is a permanent change to the original terms of your mortgage agreement. This option is designed to help borrowers who are facing financial hardship avoid foreclosure and remain in their homes.

When you modify your loan, your lender may agree to lower your interest rate, forgive a portion of your principal, or your investor may offer a lower interest rate or have a program which extends your repayment timeline. Spreading your balance over a longer period will lower the principal and interest portion of your payment, however, if your past due balance is significant or your investor requires you to add an escrow account your overall payment may increase with a modification. Unlike a refinance, a modification doesn’t require you to apply for a new mortgage, it simply alters the terms of your existing mortgage.

To pursue a loan modification, you must contact your mortgage servicer directly, explain your hardship, and submit a formal application with supporting financial documents.

9.  How to lower your mortgage payment before closing

If you are currently shopping for a home or are in the middle of the underwriting process, here are some strategies on how to help make sure you get an affordable monthly payment.

Compare rate and term options before closing

Take the time to evaluate different structural options, such as comparing a 30–year fixed mortgage against a 15–year alternative or asking your loan officer about temporary interest rate buydowns. Shopping around and comparing initial loan estimates across different lenders ensures you secure the absolute lowest baseline interest rate available for your financial situation.

Review taxes, insurance, and mortgage insurance before closing

When you get your Loan Estimate and Closing Disclosure, take a close look at your projected escrow costs. If the estimated homeowners insurance premium seems high, shop around for your own independent policy and hand it over to your underwriter before closing. Look closely at the property tax projections for the home's specific zip code, and consider adjusting your down payment size to minimize your private mortgage insurance monthly charges.

FAQs about lowering your mortgage payment

Here are the answers to some frequently asked questions about lowering your mortgage payment.

What is the “2–2–2 rule” for mortgages?

The "2–2–2 rule" is an informal rule of thumb used by some borrowers to evaluate whether it’s a good idea to refinance. It suggests considering a refinance if current market interest rates have dropped by at least 2% since you took out the mortgage, you plan to remain in the home for at least 2 more years, and the total costs of executing the refinance can be fully recouped within 22 months of monthly savings.

How can I lower my house payment without refinancing?

You can lower your house payment without refinancing by asking your conventional lender for a mortgage recast, successfully requesting the cancellation of your private mortgage insurance (PMI), shopping around for cheaper homeowners insurance policies, or legally appealing an inaccurate local property tax assessment.

Does refinancing always lower your mortgage payment?

No, refinancing does not automatically guarantee a lower monthly payment. If market interest rates have increased since you took out your original loan, or if you choose a significantly shorter repayment term, your required monthly payment will likely increase, even though you will save on overall lifetime interest costs.

The bottom line

If your income decreases or other costs of living increase, your monthly mortgage payment may begin to weigh heavily on your budget. If you’re having trouble keeping up with your mortgage payments alongside your other expenses, know that you have actionable choices. Whether you seek to reduce your homeowners insurance costs, appeal your taxes or refinance, there are options you can use to reduce the amount you owe each month.

If you are an existing Rocket Mortgage customer looking to explore your options, we are here to support you. Reach out and talk to us today to connect with a Home Loan Expert and discover the best path toward a lower monthly payment.

¹ Refinancing may increase finance charges over the life of the loan.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.