Housing is often the largest monthly expense for most households, taking about 33 percent of their budget on average. If your mortgage payments are stretching your finances too thin, there are practical ways to reduce your costs without compromising your long-term financial stability. In this guide, we’ll lay out the most effective moves you can make. From choosing a loan term that suits your financial goals to finding ways to reduce property taxes, each of these strategies offers a clear path to free up room in your budget.
Go Longer on Your Loan Term
Weighing 30-Year vs. 15-Year Loans
The length of your loan (also known as the term) has a big impact on your monthly payment. Shorter terms, like 15-year mortgages, feature higher payments but reduce the total interest you’ll pay over the life of the loan. Longer terms, like 30-year mortgages, spread out your balance, which can drop monthly costs by a lot.
Why It Helps: A 30-year term lowers your monthly payment, allowing more breathing room for other expenses. The trade-off is that you’ll pay more in total interest over time. Still, for many people, that smaller monthly check is worth it.
Considerations
Future Income: If you think your earnings will rise down the road, you could lock in a 30-year mortgage now and potentially refinance or make extra payments later.
Interest Rate Variations: Shorter loans usually carry lower rates, which increases the total interest savings.
Lifestyle Fit: Maybe you’d prefer to keep more money free each month for an emergency fund or investments. A 30-year mortgage can deliver that flexibility.
Make a Larger Down Payment
Why Bigger Can Be Better
Putting more money down immediately reduces the loan principal, and will make for smaller monthly mortgage payments. Plus, if you can manage to put at least a 20 percent down payment, you can skip private mortgage insurance (PMI) altogether, which is another monthly savings.
Balancing Your Savings
Emergency Reserves: Don’t empty your entire savings to hit 20 percent. You’ll want some financial cushion for unexpected repairs or life changes.
Opportunity Costs: With very low interest rates, some buyers keep extra cash handy for other investments or to maintain a healthy emergency fund.
Finding the sweet spot for your down payment rests on your overall financial health, short-term cash needs, and desire for monthly savings.
Shop Around for the Best Mortgage Rate
Because Every Tenth of a Percent Counts
Mortgage interest rates can vary from lender to lender. Even a 0.25 percent difference can save you thousands over the life of the loan. So make sure you do your homework and don't settle on the first quote you see.
Collect offers from at least three lenders—maybe a big bank, a local credit union, and an online specialist. Compare their interest rates and fees (like origination or underwriting). Sometimes a lender with a fractionally higher rate may have fewer fees, or vice versa.
Negotiation Tactics
Leverage Multiple Quotes: Telling Lender B about a better rate from Lender A might help get a rate match or a fee discount.
Check the APR: The Annual Percentage Rate captures the costs of interest and fees, giving you a clearer picture of total costs.
A little homework now translates to monthly savings for decades.
Eliminate (or Avoid) Private Mortgage Insurance (PMI)
Why It Exists
For most conventional loans, if you put down less than 20 percent, you’ll likely have to have PMI. This insurance protects the lender if you stop making payments. It helps you get into a house for less than 20 percent, but it's an added monthly expense on top of your mortgage.
Strategies to Ditch PMI
Hit 20 Percent Equity: Once your home value or payments push your equity to 20 percent, call your lender to remove PMI. They may automatically drop it at 22 percent, but it doesn't hurt to be proactive.
Refinance: If your home has appreciated or you’ve paid down a chunk of principal, a mortgage refinance might push your equity above 20 percent. Compare closing costs against the monthly savings before deciding.
Higher Down Payment: Making a 20 percent down payment from the start avoids PMI entirely.
Eliminating PMI can be one of the quickest ways to take $50–$200 off your monthly payment, depending on your loan size and risk profile.
Buy Points to Lower Your Interest Rate
Paying Interest in Advance
Mortgage points are an upfront fee you pay to bring down your loan’s interest rate. One point typically equals 1 percent of your loan amount (so $2,000 for a $200,000 loan), and might cut your rate by about 0.25 percent, though this varies.
Who Benefits?
If you plan to stay in the house for a long time, points can make a big difference. You pay more at closing, but your monthly payment drops, leading to big interest savings over the years.
Doing the Math
Calculate Your Break-Even: Divide the cost of points by your monthly savings to see how many months it takes to break even. If you’ll stay in the home longer than that, buying points is likely profitable.
Consider Future Moves: If you might refinance or sell soon, paying points now might not pay off.
It’s essentially prepaying some interest. This is a solid plan for stable homeowners, but less so for short-term situations.
Lower Property Taxes & Homeowners Insurance
Escrow Adds Up
Many mortgages include property taxes and homeowners insurance as part of the monthly payment, held in escrow. If you can reduce these, you’ll shrink your monthly mortgage bill.
Reducing Property Taxes
Check Your Assessment: Counties sometimes over-value homes. If yours seems high, you can appeal with evidence of comparable sales or an appraisal.
Look for Exemptions: Some areas have exemptions for veterans, seniors, or first-time homeowners.
Cutting Insurance Premiums
Bundle Policies: Use the same insurer for home and auto to snag a discount.
Upgrade Security: Adding alarm systems, storm-proof features, or better roofing materials might qualify for a rate reduction—just make sure it’s worth the cost to install.
While you won’t cut these to zero, small changes can drop your monthly costs more than you’d think.
Refinance for a Better Deal
Turning an Old Loan into New Savings
Refinancing means replacing your current mortgage with a new one, ideally with a lower interest rate or better terms. If rates have fallen since you locked in your original mortgage, or your credit has improved, you might be in line for a lower monthly payment.
The Catch
Refinancing your mortgage isn’t free. Expect closing costs similar to your initial mortgage. If the monthly savings don’t pay back these costs within the time you plan to keep the home, refinancing might not be worth it. Still, if you can cut your interest rate significantly or eliminate PMI, the math often works in your favor.
Loan Options That Can Help
Pick a Longer Loan Term—or Shorter?
It might sound counterintuitive, but a shorter loan term doesn’t always suit everyone’s budget. Yes, 15-year loans reduce overall interest, but they also raise monthly payments. Sometimes, swapping from a 15-year to a 30-year (or 20-year) loan can slash your monthly commitment, freeing money for other goals, like college savings or retirement investments.
Life Changes: If you’re aiming to boost your liquidity or handle more immediate financial demands, going for a longer term can bring you that monthly relief. You can still pay extra principal whenever you can, effectively reducing the timeline.
Loan Modification If Times Are Tough
If you’re struggling to keep up, a loan modification might be an option—where your lender adjusts the terms (like extending the length of the mortgage or changing the rate) to bring payments down. It’s not a guarantee and typically requires demonstrating genuine hardship. But for those in a temporary bind, it’s better than missing payments or heading toward foreclosure.
Mix and Match Multiple Approaches
Combining Strategies
You aren’t restricted to just one tactic. For example, you could:
Shop for a lower homeowners insurance rate while
Refinancing for a better interest rate and
Increasing your down payment on a new loan if you’re trading up to another property.
Each angle can yield modest monthly savings that add up to something noticeable.
Beyond the Mortgage: Shrink Your Housing-Related Bills
Utilities and Maintenance
Another indirect way to lower your housing costs is by reducing the monthly bills attached to your home. Taking steps like improving insulation, or scheduling regular HVAC maintenance can help cut utility costs. The less you spend on electricity, gas, or repairs, the less of a financial burden your total home spend becomes. In tight months, that extra margin can feel like a lifesaver.
Renting Out Extra Space
If you have a spare bedroom or finished basement, renting it out is effectively lowering your mortgage. This isn’t for everyone, but for those comfortable sharing, you can recoup some of your monthly costs. If you decide to try it, be sure to vet potential roommates thoroughly or adhere to any local zoning rules for short-term rentals.
Conclusion
Lowering your monthly mortgage payment might not happen overnight, but it's often a blend of smaller strategies working together. Whether you opt for a longer term to spread out payments, invest a bit more upfront to slash what you owe, or shop around to trim insurance and property taxes, each step moves you closer to a manageable monthly figure.
Remember, the best option depends on your current loan, credit health, and life plans. Maybe you’ll find a sweet spot by combining a couple of these tips, like refinancing at a lower rate while also getting rid of PMI as your home value rises. Always remember that these strategies are flexible and can be tailored to your situation and comfort level.
Ready to Find the Perfect Home?
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Michael Letendre
Michael Letendre is a writer for NewHomeSource and Builder Magazine.