How to Get a Lower Mortgage Payment

What Makes Up a Mortgage Payment?

In order to know how to reduce your mortgage payment, you first need to know what makes up a mortgage payment. The four components of a mortgage payment are principal, interest, taxes, and insurance. Often, these components are abbreviated as PITI.

Principal is the amount of your loan that you have to pay every month. Interest is the amount that you have to pay to your lender as a “reward” for loaning you money. Taxes include your property taxes from the government. Finally, property insurance and sometimes private mortgage insurance are included in your monthly payment.

How to Reduce Your Mortgage Payment

There are several ways that you can reduce your monthly mortgage payment. First, you can refinance your mortgage payment to get a lower interest rate. This will lower your PITI by reducing the interest component. 

Make sure that you only refinance when interest rates are lower than what you already pay. Additionally, when you refinance, you will need to pay closing costs, so ensure that you will save more than you spend on closing costs before proceeding with your refinance.

You could also refinance your mortgage to get a longer loan term, thus reducing the amount of money you owe. If you have been paying your mortgage for ten years and get a new thirty-year mortgage loan, you can significantly reduce your savings. However, you will be paying your home off for longer.

If you have an FHA loan, or if you put less than 20% down on your home, you can also reduce your mortgage payment by reducing the insurance aspect of your PITI. If you put more than 10% down on an FHA loan, you might be eligible to get rid of your mortgage insurance premium, or MIP. You can also try to get rid of your MIP by refinancing to a conventional loan.

There are several ways to get rid of PMI. While you can refinance to remove your PMI, you can also get an appraisal to see if you have hit 20% equity if the market has gone up since you bought your home.

There are several ways to reduce your monthly mortgage payment, all of which affect different aspects of your PITI - principal, interest, taxes, and insurance. Talk to your lender or real estate agent to see which of these options might be right for you.