19 Proven Strategies for Smaller Monthly Mortgage Bills

Buying a home usually means a big money commitment: the monthly mortgage payment. As a Chartered Financial Analyst with 22 years of real estate investing, I’ve seen many homeowners struggle with this cost.

Recent numbers show that 43% of new homeowners say they have trouble paying their mortgages on time. This shows the need for useful ways to handle mortgage payments better.

I made this guide to help homeowners like you find smart but different ways to lower your mortgage payments. These ideas are not the usual advice but offer new ways to ease your financial burden.

Some ideas might seem strange at first, but many homeowners have found them helpful in different situations. It’s important to know that each homeowner’s case is different.

What works well for one person might not fit another. You might try a mix of these ideas or find one that solves your mortgage problem best.

In this guide, I’ll share what I’ve learned from many years in real estate. My aim is to give you knowledge and tools to better manage your mortgage payments.

Let’s begin this path to less stress and success in owning your home!

Apply for Loan Modification Programs

Loan modification programs can help if you are having trouble paying your mortgage. These programs work with your lender to change your loan terms to better fit your budget.

Although the Home Affordable Modification Program (HAMP) has ended, many lenders still have their own ways to adjust loans. This might mean lowering your interest rate, making your loan longer, or sometimes lowering the amount you owe.

For example, changing your loan from 15 years to 30 years can lower your monthly payment, even if the interest rate stays the same. To get started, contact your lender and ask about their loan modification choices.

Be ready to show proof of your money problems and income. Keep in mind, lenders usually prefer to change loans instead of going through foreclosure, so don’t be afraid to ask for help.

Utilize Government Assistance Programs

The government has several programs to help homeowners handle their mortgages more easily. These programs usually have easier rules than regular loans and can save you a lot of money.

For example, if you have an FHA loan, you could use FHA Streamline Refinancing. This lets you refinance your mortgage with less paperwork and might not need an appraisal, saving both time and money.

Veterans with VA loans can use the VA Interest Rate Reduction Refinance Loan (IRRRL) to lower their interest rates with little trouble. Many states also have their own mortgage help programs. These can include low-interest loans for home repairs or aid with down payments for first-time buyers.

To find out what is offered near you, contact your state’s housing agency or visit the U.S. Department of Housing and Urban Development (HUD) website to see a list of local programs.

Rent Out Part of Your Home

Turning a portion of your home into a rental space can be an excellent way to offset your mortgage payments. You could rent out a spare bedroom, convert your basement into an apartment, or even offer your garage as storage space.

This strategy essentially lets other people pay off the mortgage for you, easing your financial burden. For example, if your mortgage is $1,500 per month and you can rent out a room for $500, you’ve just cut your personal housing expense by a third.

This strategy not only helps with your mortgage but can also provide some tax benefits, as you may be able to deduct certain expenses related to the rental portion of your home. Before you start, make sure to check local zoning laws and regulations about renting out part of your property.

Also, consider the impact on your daily life, sharing your space with a tenant is a big decision that requires careful thought.

Check Out Local Housing Assistance

Many cities and states offer programs to help homeowners manage their mortgage payments. These might include grants or low-interest loans for home repairs or energy-efficient upgrades, which can lower your overall housing costs.

Some areas offer property tax reductions for certain homeowners, such as seniors or veterans, effectively lowering your total monthly housing payment. There might also be programs specifically for first-time homebuyers or low-income families that offer down payment assistance or favorable loan terms.

For example, some cities offer forgivable loans for down payments, which turn into grants if you stay in the home for a certain number of years. Check with your local housing authority, community development office, or state housing finance agency to learn about options in your area.

Make a Bigger Down Payment

Making a larger down payment when you buy a home can significantly reduce your monthly mortgage payments. This strategy works because you’re borrowing less money overall, which means lower payments throughout the life of your loan.

For example, if you’re buying a $300,000 home, putting down 20% ($60,000) instead of 10% ($30,000) could save you hundreds of dollars each month. An added bonus of a 20% down payment is that you’ll usually avoid paying for Private Mortgage Insurance (PMI).

This insurance protects the lender if you default on your loan, and not having to pay for it can lead to substantial savings. If you’re in the process of saving for a home, consider taking a bit more time to build up a larger down payment.

Personally, I prefer not to make down payments, but my goal was never to minimize my mortgage payments.

Downsize Your Home

Moving to a smaller, cheaper home can greatly lower your mortgage payment. This means selling your current house and buying one that costs less. The result is a smaller loan, which leads to lower monthly payments.

For example, if you move from a $400,000 home to a $300,000 home, your mortgage payment could go down by about 25% or more. Along with lower mortgage costs, a smaller house usually means paying less in property taxes, utility bills, and upkeep.

Even though moving can seem hard, the money you save over time can be very helpful. Many people who move to smaller homes find they save money and enjoy an easier life with less work and more financial freedom.

I think this is the best choice on this list. You should only buy a home you can really afford.

Refinance Your Mortgage

Refinancing your mortgage means replacing your current loan with a new one that has better mortgage terms. This can be an effective way to lower your monthly payments, especially if interest rates have dropped since you first got your mortgage.

For example, if you originally had a 30-year fixed-rate mortgage at 5% interest, and rates have fallen to 3.5%, refinancing could save you hundreds of dollars each month. Another scenario where refinancing helps is if your credit score has improved significantly since you first got your mortgage.

A good credit score often qualifies you for lower interest rates. Keep in mind that refinancing usually involves closing costs, so you’ll need to calculate if the long-term savings outweigh these upfront expenses.

Many homeowners find that the monthly savings make refinancing well worth it, especially if they plan to stay in their home for several more years.

Switch to Biweekly Payments

Changing your payment plan to biweekly can change your mortgage a lot over time. Instead of paying 12 times a year, you’ll pay 26 half-payments.

This small change means you pay one extra full payment each year, which goes straight to your loan balance. Over time, this can help you finish paying your mortgage sooner and save you a lot on interest.

For example, with a $200,000 mortgage for 30 years at 4% interest, biweekly payments might help you pay off the loan about 4 years early and save more than $22,000 in interest. Many lenders let you do this, but if yours does not, you can do the same by putting aside half of your payment every two weeks.

Just check that you don’t have to pay extra fees for using this method.

Negotiate with Your Lender

Talking with your lender directly can help you find ways to lower your mortgage payment. Lenders usually want to find a solution instead of letting the home go into foreclosure. If you are having money problems, tell your lender about your situation and ask about payment help options.

They may offer temporary forbearance, letting you stop or lower payments for a short time. Some lenders might agree to change your loan by lowering the interest rate or changing the loan length to make payments easier.

For example, they might stretch your loan back to 30 years, which means spreading out the amount you owe over more time and cutting your monthly payment. Keep in mind, lenders want to keep good customers, so don’t hesitate to ask for help when needed.

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Use Mortgage Points

Mortgage points, also known as discount points, are fees you can pay upfront to lower your interest rate. Each point costs 1% of your loan amount and typically lowers your rate by 0.25%.

For example, on a $200,000 loan, one point would cost $2,000 and might reduce your rate from 4% to 3.75%. This reduction can lead to significant savings over the life of your loan.

Buying points makes the most sense if you plan to stay in your home for a long time, allowing you to recoup the upfront cost through lower monthly payments. To decide if points are right for you, calculate how long it will take for the monthly savings to equal the cost of the points.

If you’ll stay in the home longer than this break-even point, buying points could be a smart move.

I am a big fan of mortgage points. I pay them instead of down payments. The PMI goes away quickly, but you are still locked into a lower interest rate. It’s brilliant.

Shop Around for Better Rates

Taking time to check offers from several lenders can help you save a lot on your mortgage. Even a small change in the interest rate can save you thousands during your loan.

Start getting quotes from banks, credit unions, and online lenders. Look beyond the interest rate and check the Annual Percentage Rate (APR), which includes fees and shows the true cost of the loan.

For example, if you borrow $250,000, a 0.5% lower interest rate could save you over $70 each month and more than $25,000 over 30 years.

Also, think about using a mortgage broker who can reach many lenders and may find better deals than you can alone.

Try a Mortgage Recast

A mortgage recast can lower your monthly payments if you have a large sum of money available. With this strategy, you make a substantial lump-sum payment towards your principal, and your lender then recalculates your payments based on the new, lower balance.

Your interest rate and loan term stay the same, but your monthly payments decrease. For example, if you have a $300,000 30-year mortgage at 4% interest and make a $50,000 lump-sum payment, your monthly payment could drop $240.

This option works well if you receive an inheritance, bonus, or other windfall. Not all lenders offer recasting, and there’s usually a fee involved, but it’s often much lower than refinancing costs.

Extend Your Loan Term

I don’t agree with this idea personally, but to fit the article, you can lower your mortgage payments by making your mortgage longer.

Making your mortgage term longer can make your monthly payments smaller. If you now have a 15-year or 20-year mortgage, changing it to 30 years will spread out what you owe over more time, so your monthly bills will be less.

For example, if you owe $200,000 on a 15-year mortgage with a 3.5% interest rate, your monthly payment might be about $1,430. Changing it to a 30-year term at the same rate could bring the payment down to about $900.

Remember, this will lower your monthly payments but will also mean you pay more interest overall. Still, if your main goal is to free up money each month, making your loan longer can help a lot.

Consider an Adjustable Rate Mortgage (ARM)

An Adjustable Rate Mortgage (ARM) starts with a lower interest rate than fixed-rate mortgages, which means lower initial monthly payments. The rate remains stable for a set period, often 5, 7, or 10 years – before adjusting periodically based on market rates.

For instance, a 5/1 ARM might start at 3% for five years, while a 30-year fixed-rate mortgage might be at 4%. On a $200,000 loan, this difference could save you about $115 per month for those first five years.

ARMs can be a good option if you plan to move or refinance before the adjustable period begins. They’re also worth considering if you expect your income to increase substantially in the future, allowing you to handle potential rate increases.

Consider an Interest-Only Loan

An interest-only mortgage lets you pay just the interest on your loan for a fixed time, usually 5 to 10 years. This can make your monthly payments much lower at first.

For example, on a $300,000 30-year loan at 4% interest, a regular payment would be about $1,432 each month. With an interest-only loan, you might pay only $1,000 a month during that time.

This kind of loan can help if you think your income will grow a lot later or if you plan to sell your house before the interest-only time ends. Keep in mind, your payments will go up a lot after this period, and you will not build any ownership in your home while paying only interest.

Think about your long-term money plans carefully before picking this option. I had an interest-only mortgage once; it is risky. You must be ready to pay it back and understand what your payments could be in the hardest times.

Explore Shared Appreciation Mortgages

A shared appreciation mortgage (SAM) offers lower monthly payments in exchange for a share of your home’s future appreciation. Under this arrangement, your lender agrees to reduce your interest rate or monthly payments.

In return, when you sell your home or after a set period, you pay the lender a percentage of the increase in your home’s value. For instance, you might get a 2% reduction in your interest rate in exchange for 25% of your home’s appreciation.

This can significantly lower your monthly payments now, but it means you’ll give up some potential profits in the future. SAMs are less common and more complex than traditional mortgages, so make sure you understand all the terms before agreeing to one.

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Use a Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) can help you manage your mortgage payments. A HELOC lets you borrow money using the value of your home, usually with a lower interest rate than other loans.

You can use a HELOC to pay off debt with high interest, giving you more money to pay your mortgage. Another option is to use it for home repairs that raise your home’s worth, which might help you get a better mortgage loan later.

For example, if you owe $20,000 on credit cards with an 18% interest rate, paying it off with a HELOC at 5% interest could save you a lot each month. Just be careful not to borrow too much, and keep in mind your home is the backup for the HELOC.

I have used HELOCs many times, usually to lower interest rates or for down payments.

Look into Assumable Mortgages

An assumable mortgage allows a buyer to take over your existing mortgage terms when you sell your home. This feature can be particularly valuable when interest rates are rising.

For example, if you have a mortgage at 3.5% interest and current market rates are 5%, a buyer might find your assumable mortgage very attractive. This can make your home easier to sell, potentially at a higher price.

FHA and VA loans are often assumable, while conventional loans typically are not. If you’re buying a home, looking for one with an assumable mortgage could save you money on interest if rates have increased since the original mortgage was issued.

Keep in mind that the buyer usually needs to qualify for the loan and may need to pay the difference between the outstanding mortgage balance and the home’s purchase price.

Explore Balloon Payment Mortgages

A balloon mortgage has lower monthly payments for a set time, usually 5 to 7 years, but you must pay a large amount all at once when that time ends. For example, you pay as if you had a 30-year mortgage, but after 7 years, you must pay the rest of the loan in full. This setup can lower your monthly payments for a short time.

With a $200,000 loan at 4% interest, your payment might be about $955 per month, compared to $1,432 on a regular 30-year fixed mortgage. This kind of mortgage can be good if you plan to sell your home or get a new loan before the big payment is needed.

It can also help if you expect to get a large amount of money later. Be careful with this plan, as missing the big payment could lead to losing your home.

Mastering Your Mortgage

Lowering your mortgage payment does not have to be just a wish. The 19 tips we shared give simple and useful ways to cut your monthly housing bills. Begin with the ideas that best fit your current situation and money goals.

Making changes to lower your mortgage payment can improve your overall money situation a lot. You will have extra cash for other needed costs, grow your savings, and feel less money pressure. Also, you will feel calm knowing you have control over your housing costs.

Don’t let a big mortgage payment hold you back anymore. Look over these tips, pick the ones that work for you, and take the first step to having an easier mortgage.

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AI was used for light editing, formatting, and readability. But a human (me!) wrote and edited this.