Ways to reduce what you owe each month
Your house payment can be lowered through refinancing, loan modification, or a combination of both. Refinancing means taking out a new loan to pay off the old one—usually at a lower interest rate or over a longer period. Loan modification means asking your current lender to change the terms of your existing loan without replacing it. A third option, less common but real, is to challenge your property tax assessment, which directly reduces the amount your lender collects in escrow each month.
The fastest route depends on your credit score, how much equity you have, current interest rates, and how long you plan to stay in the house. If rates have dropped since you got your mortgage, refinancing often makes sense. If your credit has taken a hit or you owe more than the house is worth, loan modification through your lender may be your only option.
Key Takeaways
- Refinancing works best when interest rates have fallen or your credit has improved since you took out your original mortgage.
- Loan modification lets you extend your loan term, lower your interest rate, or pause payments without replacing your entire mortgage.
- Property tax assessment challenges can reduce the escrow portion of your payment, though the process varies by county and takes months.
- Paying extra toward principal each month reduces the total interest you pay over the life of the loan but does not lower your required monthly payment.
- Removing private mortgage insurance (PMI) is possible once you have built enough equity, and it can save $100 to $300 per month depending on your loan size.
Refinancing: when it makes financial sense
Refinancing replaces your current mortgage with a new one. The new lender pays off the old loan, and you start making payments to the new lender instead. This works to lower your payment if the new interest rate is lower than your current rate, or if you extend the loan term (for example, from 15 years to 30 years). It also works if you have built equity and can remove PMI from the new loan.
The catch is that refinancing costs money upfront. Closing costs typically run 2 to 5 percent of the loan amount and cover appraisal, title search, underwriting, and lender fees. You need to calculate whether the monthly savings will cover those costs within a reasonable timeframe—usually two to five years. If you plan to move or pay off the house sooner, refinancing may not be worth it.
To refinance, contact your current lender or shop with other banks and mortgage brokers. You will need recent pay stubs, tax returns, and a current credit report. The lender will order an appraisal to confirm the house value. The process typically takes 30 to 45 days from application to closing.
Loan modification: changing the terms without replacing the loan
Loan modification is a direct negotiation with your current lender to change your mortgage terms. You can ask them to lower your interest rate, extend your loan term, add unpaid interest or fees to the balance, or temporarily reduce your payment. Unlike refinancing, you do not take out a new loan or pay closing costs.
Loan modification is most common when you are behind on payments or facing hardship. Many lenders have formal programs—sometimes called loss mitigation or workout programs—that allow them to modify loans without going through the full refinancing process. However, you can also request modification even if you are current on payments, though lenders are less motivated to help in that case.
Contact your lender's loss mitigation or customer service department and ask about modification options. Be prepared to explain why you want the change and provide recent financial documents. The process can take 30 to 90 days, and there is no may provide the lender will agree. Some lenders charge a small fee for modification; others do not.
Removing PMI to cut your payment
Private mortgage insurance (PMI) is an insurance policy your lender requires if you put down less than 20 percent when you bought the house. It protects the lender if you default, but you pay the premium—typically 0.5 to 1.5 percent of your loan balance per year, added to your monthly payment. Once you have built enough equity, you can request removal.
PMI can be removed once your loan balance drops to 80 percent of the original home value. If you bought the house for $300,000 and put down 10 percent ($30,000), your original loan was $270,000. You can request removal once the balance falls to $240,000 (80 percent of $300,000). This happens through a combination of regular payments and home appreciation.
Contact your lender and ask for PMI removal. You may need to order a new appraisal to prove the home value has risen, which costs $300 to $500. Some lenders will remove PMI automatically once you hit the 80 percent threshold; others require you to request it. Removing PMI can save $100 to $300 per month depending on your loan size.
Challenging your property tax assessment
Property taxes are collected by your county or municipality and added to your mortgage payment through escrow. If your property tax assessment is higher than it should be, lowering it reduces the escrow portion of your payment. This is a separate process from refinancing or loan modification and works alongside either one.
To challenge your assessment, contact your county assessor's office and ask about the appeal process. Most counties allow one appeal per year, and the deadline varies—some are in spring, others in fall. You will need to gather evidence that your home is worth less than the assessed value: recent sales of comparable homes, a professional appraisal, or documentation of damage or needed repairs.
The appeal process typically takes three to six months. If you win, your new assessed value takes effect the following tax year, and your escrow payment drops. The savings depend on your local tax rate and the reduction in assessed value, but can range from $20 to $200 per month.
Making extra principal payments without refinancing
Paying extra money toward principal each month reduces the total interest you pay over the life of the loan, but it does not lower your required monthly payment. This is different from the other methods on this page. You still owe the same amount each month; you are simply paying down the loan faster on top of that.
If your goal is to reduce the total interest paid or own the house outright sooner, extra principal payments work. If your goal is to lower the payment itself, this method does not help. Some people do both: refinance to lower the payment, then make extra principal payments to pay off the new loan faster.
Comparing your options side by side
| Method | Upfront Cost | Timeline | Best For |
|---|---|---|---|
| Refinancing | 2–5% of loan amount (closing costs) | 30–45 days | Lower rates, improved credit, or removing PMI |
| Loan modification | $0–500 (usually free) | 30–90 days | Hardship, behind on payments, or avoiding closing costs |
| PMI removal | $300–500 (appraisal only) | 30–60 days | Reached 80% loan-to-value ratio |
| Tax assessment appeal | $0–500 (appraisal optional) | 3–6 months | Overassessed property or recent market decline |
Frequently Asked Questions
Will refinancing hurt my credit score?
Yes, but temporarily. A hard inquiry and new account will lower your score by 5 to 10 points initially. Your score typically recovers within three to six months as you make on-time payments on the new loan. The long-term benefit of a lower interest rate usually outweighs the short-term dip.
Can I get a loan modification if I am current on my payments?
You can ask, but most lenders prioritize borrowers who are behind or facing hardship. If you are current, your lender has less incentive to modify. Refinancing is usually a better option if you have good credit and rates have dropped.
What happens to my escrow account if I refinance?
Your old escrow account is closed and any balance is returned to you. Your new lender will set up a new escrow account and collect property taxes and insurance going forward. The new escrow payment may be higher or lower depending on your new loan amount and local tax rates.
How much will my payment drop if I remove PMI?
It depends on your loan size and the PMI rate your lender charged. On a $200,000 loan, PMI typically runs $100 to $300 per month. Removing it saves that amount each month, though your principal and interest payment stays the same.
Can I refinance if I owe more than the house is worth?
Conventional refinancing requires you to have equity. If you owe more than the house is worth, you may be able to refinance through a government program like FHA Streamline or HAMP, or you can ask your current lender about loan modification instead.