Finance
February 2, 2024
Updated May 22, 2023
Your monthly mortgage includes payments on the loan principal and interest, not to mention your property taxes, private mortgage insurance, and homeowner’s insurance. And then there are the costs of actually living in the house.
If you want to squeeze more enjoyment out of life and your home, you might be wondering how to get a lower monthly mortgage payment without refinancing?
While a mortgage refinance can sometimes help you lock in a lower interest rate and monthly payment, it often comes with steep closing costs. Luckily, there are other ways to reduce your mortgage payment without refinancing.
In this guide, we’ll go over five potential methods for lowering your monthly costs without refinancing.
1. Mortgage Recasting and Prepayment
If you have some cash or assets on hand, you could use them to lower your monthly mortgage payment. Here’s how a mortgage recast works:
- Your mortgage loan has a principal balance (the amount you owe). You also pay interest on this mortgage balance every month.
- If you make a large lump sum payment towards the principal, you’ll owe less—and you’ll be making an interest payment on a lower amount. Your bank will automatically “recast” the mortgage home loan to reflect a lower monthly payment over the same loan term. This can be a great option if you come into an inheritance or can liquidate assets.
- Are you working 9-5 now but hoping to retire on a fixed income in the future? Working two jobs and hoping to go down to one? You can make a prepayment by paying a little (or a lot) more than you owe each month now to ensure a lower monthly payment in the future. You could even plan biweekly payments to stay ahead of the game.
Of course, these options only work if you already have cash on hand for an extra payment. If you don’t, then a mortgage recast probably isn’t an option for you. If you’re still wondering how to lower your mortgage payment without refinancing or needing cash on hand, read on.
2. Loan Modification
If you’re having trouble meeting your mortgage loan payments or you’re simply unhappy with the terms of your loan, it never hurts to talk to your bank or mortgage lender. There’s a chance they’d be willing to make one of the following adjustments to bring down your monthly payment to help you save money.
- Extending your loan term – A conventional mortgage term is 30 years. However, your bank could extend your loan payment term or repayment plan to help lower your payments. Keep in mind that you’ll ultimately pay more in interest over the life of your conventional loan.
- Reducing your interest rate – If you locked in your loan when interest rates were sky-high, your bank might be willing to change your mortgage rate to better reflect the market today.
- Changing from adjustable to fixed interest – Some home loans carry a variable insurance rate, which means your interest payment can vary from year to year. If your financial situation has changed and you need an accurate estimate of your future mortgage payments, ask your bank to switch from an adjustable-rate mortgage to a fixed-rate loan or mortgage interest rate.
When it comes to loan modifications, it’s always worth asking. The worst your bank or mortgage lender can say is no. In which case, if you really find yourself in trouble, you can always consider requesting mortgage forbearance with your loan servicer for a temporary pause on payments. However, there are many pros and cons of mortgage forbearance to consider, one of which being how forbearance affects credit.
For more information about loan modification and other options, check out our comparison of a loan modification vs refinance.
3. Cancel Your Mortgage Insurance
If your down payment was lower than 20%, your bank likely required you to take out private mortgage insurance (PMI).
This insurance protects the bank’s investment in the event that you default on your home loan. But you don’t have to keep paying it forever.
There are two ways to end your PMI payments early:
- Your bank lays out a set date when your PMI will automatically end. However, you can request early termination as soon as the remaining mortgage balance due is 80% of the original purchase price.
- If your home has gained value, you could also request a reappraisal. If your loan balance is less than 80% of the new appraised value, your bank should cancel your PMI.
4. Appeal Your Property Tax Assessment
In most cases, your bank pays your property taxes out of your current mortgage payment every month.
Think you’re paying too much in property taxes? You can appeal for anywhere from 30-90 days after a new property tax assessment (depending on your municipality).
Due to the short window for appeal, this strategy won’t do much good unless you’ve had a recent assessment.
5. Utilize a Sale-Leaseback
Your home is likely your biggest asset. Many people use types of refinancing as a way to take cash out based on their home equity.
But refinancing comes with appraisals, closing costs, and other fees. And in some cases, your mortgage payment may not even go down after a cash-out refinance. But this doesn’t mean you have to resort to forbearance or seek how to get out of a mortgage entirely.
Another way to enjoy your home equity without mortgage refinancing is to sell your home to a new buyer and take the profit. Then, lease it back as a renter. The only trick is finding a reliable sale-leaseback solution that will let you stay in your home for as long as you want.
A Reliable Option
When it comes to how to reduce mortgage payments without refinancing, a sale-leaseback is one of the most attractive options for increasing your monthly cash flow.
Consult a financial advisor to explore your options and find out how you can lower your monthly costs without moving.
Key Takeaways
If you’re looking to lower your mortgage loan payments without refinancing, there are other options available. Talk to a financial advisor today to figure out which solution would be best for your specific needs and learn more. You can also learn How to Get a Second Mortgage With Bad Credit here.
