Tips To Get Your Mortgage Payments as Low as Possible

Gabrielle Olya
·9 min read
gradyreese / Getty Images
gradyreese / Getty Images

Housing costs are the largest expense for most Americans. Financial advisors typically suggest dedicating 25% of your monthly budget to housing, but the average American spends roughly 33% of their budget on housing costs, according to the Bureau of Labor Statistics. That means that many Americans are spending more than the suggested amount.

Read: Strategies To Pay Off Your Mortgage Earlier

Here are some options for getting your mortgage payments as low as possible.

Last updated: April 12, 2021

a saleswoman or estate agent shows a couple around a home with new kitchen.
a saleswoman or estate agent shows a couple around a home with new kitchen.

How Prospective Homebuyers Can Get the Lowest Mortgage Payment Possible

If you’re in the market for a home, there are steps you can take right now to ensure your mortgage payments are low when you make your home purchase.

See: 32 Insider Tips for Buying and Selling a House

Family with a child using laptop and credit card.
Family with a child using laptop and credit card.

Increase Your Credit Score

Before applying for a mortgage, you should take steps to increase your credit score as much as possible. Having a high credit score will qualify you for lower interest rates, which means you’ll have lower payments over the life of your loan and can potentially pay thousands less in interest.

Some of the easiest ways to do this quickly include asking your lenders or credit card companies for a credit limit increase, which will improve your debt-to-income ratio; make credit card payments on time; or become an authorized user on the card of a relative or friend with good credit.

See: The Best Place To Buy a Home in Every State

Real estate agent showing a young couple a new house.
Real estate agent showing a young couple a new house.

Make a Larger Down Payment

If you’re in the process of buying a home, make as large of a down payment as you can comfortably afford to do. You should aim to put down at least 20% to avoid having to pay private mortgage insurance, but if you can pay even more upfront, your mortgage payments will be lower down the line.

Read: Common Real Estate Myths That You Need To Know

Single-family American craftsman house with blue sky background.
Single-family American craftsman house with blue sky background.

Buy a Less Expensive Home

If you’re deciding between multiple homes, choose the least expensive house that meets your needs. Perhaps it won’t have all the bells and whistles of your “dream home,” but it can lower your mortgage payments — a monthly payment that you’ll likely be making for years to come — so the sacrifice could be worth it.

Young african woman holding home keys while hugging boyfriend in their new apartment after buying real estate.
Young african woman holding home keys while hugging boyfriend in their new apartment after buying real estate.

Choose an Interest-Only Mortgage

If you won’t be able to make the full monthly mortgage payment right away, consider applying for an interest-only mortgage. With this type of mortgage, you pay only the interest for a fixed amount of time, and then pay the principal and interest payments for the rest of the loan term. With an interest-only mortgage, your payments during the initial period will be lower than with a traditional mortgage, but be aware that they will be higher once that period ends to make up for the lower initial payments.

Winter family fun.
Winter family fun.

Get an Adjustable-Rate Mortgage

With an adjustable-rate mortgage, your interest rates will change over the life of the loan. They are typically very low to start, so this is a good option if you want lower payments right now. Keep in mind that rates will increase as the loan goes on, so make sure you will be able to make the higher payments when they kick in.

Other Ways To Save: How To Save Money on All Your Monthly Expenses and Bills

Rear view shot of a young couple admiring their new house outside.
Rear view shot of a young couple admiring their new house outside.

Opt For a Long-Term, Fixed-Rate Mortgage

The typical loan term for a mortgage is between 15 and 30 years, but some lenders offer 40- and even 50-year terms. The advantage of these loans is that your monthly payments will be lower. However, it’s worth noting that the interest rate will be higher, so you will end up paying more over the life of the loan. You also will build equity in your home more slowly than you would with a shorter-term loan.

Shot of a little boy and his parents using a digital tablet together at home.
Shot of a little boy and his parents using a digital tablet together at home.

How To Lower Your Mortgage Payments If You Already Own a Home

If you’re already a homeowner but your mortgage payments have become impossible to manage — or you fear you won’t be able to afford them throughout the life of the loan — don’t panic. There are steps you can take to decrease your mortgage payments.

Shot of a young woman relaxing on the sofa with her digital tablet at home.
Shot of a young woman relaxing on the sofa with her digital tablet at home.

Pay Extra When You Can

“If you have extra money available at the end of the month, you can pay down your mortgage, which will reduce your interest payments over the life of the mortgage,” said John Sweeney, head of wealth and asset management at Figure Technologies. “Just be sure that the bank applies the extra payment to the principal, not the interest.”

Advices tips is always good.
Advices tips is always good.

Eliminate PMI

If your down payment was less than 20%, you will have to take out PMI, or private mortgage insurance. This policy protects your lender in the event that you are unable to make your payments. If you are currently paying for PMI, work to eliminate it ASAP.

“It can add a substantial amount to your monthly bill and make it harder to reach that payment threshold,” said Logan Allec, CPA and owner of personal finance site Money Done Right. “However, PMI is required to stop once you reach 20% equity in your house. If you overpay on your monthly mortgage to reach 20% faster, then your monthly payments will go down. In this scenario, you are overpaying in order to set yourself up for lower future payments.”

Multi ethnic group of Millennial investors planning new gainful activity.
Multi ethnic group of Millennial investors planning new gainful activity.

Have Your Property Taxes Reassessed

Many lenders roll property taxes in with your monthly mortgage payment. If this is the case, you could save on your monthly bill if your property taxes have decreased. If the tax rate in your area or the current market value of your home has gone down, your property taxes should as well. To find out if you qualify for lower property taxes, request to have your home reassessed by a local government assessor.

Shot of a young couple using a digital tablet while sitting at their kitchen table at home.
Shot of a young couple using a digital tablet while sitting at their kitchen table at home.

Find Cheaper Homeowners Insurance

Your homeowners insurance might be part of your monthly payment, which is deposited into your escrow account that the lender uses to pay your insurance, and perhaps your property taxes. If this is the case, shopping around for cheaper homeowners insurance could reduce your monthly mortgage costs.

To Help Pay Your Mortgage: 20 Ways To Save Money Fast

Young couple renting house.
Young couple renting house.

Rent Out Part of Your Home

Renting out a room in your home or guesthouse technically won’t lower your mortgage payment, but it will certainly help you afford it. Put those funds directly toward your monthly mortgage bill to pay less out of your own wallet.

Shot of a young couple dancing in their kitchen.
Shot of a young couple dancing in their kitchen.

Refinance Your Mortgage

Sweeney said the best thing you can do to reduce your mortgage payment is to refinance your mortgage.

“Of course, this requires that the interest rate you’re paying is higher than the current interest rate you can qualify for. But if you can reduce your rate, your house just got cheaper — simple as that,” he said. “The interest rate, which you can think of as the cost of the money you’re borrowing, went down. So you’re getting the same service for less money. The one caveat is that refinancing your mortgage resets your mortgage clock. So if you are five years into a 30-year mortgage, you will end up with a new 30-year mortgage.”

Big Family Garden Party Celebration, Gathered Together at the Table Family, Friends and Children.
Big Family Garden Party Celebration, Gathered Together at the Table Family, Friends and Children.

Increase Your Loan Term

Assuming you didn’t take out a 40- or 50-year loan to begin with, you could consider increasing your loan term. This will require refinancing — which means you’ll be paying off your mortgage for longer — but it could dramatically lower your monthly costs.

“You might consider switching from a 15-year fixed mortgage to a 30-year fixed mortgage when refinancing,” said Chris de la Motte, co-founder and president of digital mortgage marketplace Simplist.

Father Pushing Daughter On Garden Swing At Home.
Father Pushing Daughter On Garden Swing At Home.

Consider a Reverse Mortgage

A reverse mortgage is a type of loan available to seniors with equity in their homes.

“While risky, a reverse mortgage could be explored if you face dire trouble in paying your mortgage,” said Allec. “Under a reverse mortgage, you often won’t need to pay any monthly payment to the bank. In fact, the bank may actually pay you! However, the bank is paying you in order to buy your house back from you. With careful planning, a reverse mortgage could be a financial lifeline. Without it, a reverse mortgage could lead to losing your house, so proceed with extreme caution and consult a financial advisor before taking this path.”

Cropped shot of a couple looking at paperwork while sitting with their laptop.
Cropped shot of a couple looking at paperwork while sitting with their laptop.

Apply For Loan Modification

“If you’re dealing with — or about to deal with — financial hardship, you may want to consider applying for a loan modification,” said Leslie Tayne, founder and head attorney at debt solutions law firm Tayne Law Group. “Job loss or other crises can be a reason for your lender to restructure your loan to make your monthly payments more affordable.

“You don’t need to be in default in order to make this work; however, it’s often a risky game and not guaranteed,” she said. “You also may want to take preventative measures by applying for a loan modification ahead of time if you know you’re about to take a big income cut or face other financial hardship. Also, you may want to opt to try and work with your lender rather than default and deal with the modification process.”

Women friends having fun at home dancing and singing in the living room of their Los Angeles apartment.
Women friends having fun at home dancing and singing in the living room of their Los Angeles apartment.

Top Ways To Get the Lowest Mortgage Rates Possible

Homeownership can be an expensive endeavor, but there are ways to ensure that your mortgage is actually affordable.

If you’re in the process of buying a home, the best things to do are:

  • Increase your credit score

  • Make as large of a down payment as you can afford

  • Buy a less expensive home

  • Choose an interest-only mortgage

  • Get an adjustable-rate mortgage

  • Take out a 40- or 50-year fixed-rate mortgage

If you already have a mortgage and are looking to lower your payment, try these tactics:

  • Pay extra toward your principal whenever you can

  • Eliminate your PMI

  • Have your property taxes reassessed

  • Find cheaper homeowners insurance

  • Rent out part of your home

  • Refinance your mortgage

  • Increase your loan term

  • Consider a reverse mortgage

  • Apply for a loan modification

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This article originally appeared on GOBankingRates.com: Tips To Get Your Mortgage Payments as Low as Possible