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How can I lower my mortgage interest rate without refinancing?

Talk to the lender to learn about your options

by Alex Fdez
7 September, 2022 - Updated on 27 October, 2022
in Student loans
How can I lower my mortgage interest rate without refinancing

If you are in a tight financial situation and money is not enough to pay your loan, it’s time to think of a solution. You’ve probably asked yourself; how can I lower my mortgage interest rate without refinancing? The answer lies with a lender and the alternatives to achieve lower amounts.

Mortgage payments are the largest expense for most people. A lender’s first advice is to refinance. Still, with interest rates within historical norms, this single step will not be very helpful for everyone, so it is best to consider other options.

When mortgage rates go down, it is common for homeowners to want to take advantage of them. The lender will insist on refinancing to change the duration; however, you will have to re-qualify, the home must pass appraisal, and you will have to pay closing costs again. So, refinancing is not good for everyone.

Contents

  • Will my mortgage company lower my interest rate without refinancing?
  • What alternatives do you have to lower your mortgage interest rate?
    • Pay off the mortgage insurance
    • Request a loan modification
    • Reduces taxes on the home
    • Make one extra payment a year
    • Make rounded payments
    • Reduce the mortgage
  • When refinancing is not an option

Will my mortgage company lower my interest rate without refinancing?

To reduce monthly expenses in difficult times and to find out if your mortgage company can lower your interest rate without refinancing, you should contact your lender or a housing counselor directly. The lender may be able to reduce the interest rate to keep the loan afloat, but it’s up to them.

Leaving refinancing aside, the broadest option offered by counselors is loan modification. Different modification programs are available:

  • Home Affordable Modification Program (HAMP).
  • Principal Reduction Program (PRA)
  • Second Lien Modification Program (2MP)

HAMP reduces loan payments to 31% of verified monthly income. The PRA works with lenders and servicers to lower the mortgage amount. You must be eligible for 2MP; for example, those who have been successful with HAMP can choose to reduce the amount of a second mortgage.

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All you have to do is contact the mortgage company and ask to speak to the loss mitigation department, which is in charge of reducing the interest rate. You will have to present your case and the need to make a loan modification to lower the mortgage interest rate.

You can also ask about other alternatives since modification is not the only option, although if you rule out refinancing, it would be the most obvious way out. If these programs do not convince you, don’t forget to talk to your lender to find a better way out of your financial difficulty.

What alternatives do you have to lower your mortgage interest rate?

When in financial trouble, you can ask your lender how to lower your mortgage interest rate. The lender will need to review your current loan status and financial circumstances to decide which option is valid.

There are different ways to reduce the mortgage interest rate and, therefore, your monthly payments. You may understand that your decision will involve the same outcome, but each alternative is different.

If you are looking to reduce your mortgage and expenses without having to refinance the loan, here are the most valid options:

Pay off the mortgage insurance

If you paid less than 20% of the home’s value, you’re probably paying private mortgage insurance (PMI). Most people who purchase a home using a conventional down payment loan must pay PMI until the loan amount covers 20% of the home’s value.

The lender no longer requires mortgage insurance protection if the loan drops to 80% of the home’s value. The first thing you should do is contact your mortgage lender to request the elimination of PMI.

Keep in mind that paying PMI may require a call to your bank. It would be best to take notes on each call, in case you speak to multiple representatives. Also, most modern FHA and USDA loans have built-in mortgage insurance that can only be canceled by refinancing into another type of loan.

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Request a loan modification

With a loan modification, the terms of the loan change without needing a refinance. One advantage is that lenders often help homeowners who need it. This way, the lender avoids foreclosure, as they would no longer be making money on interest.

The government’s Flex modification has specific guidelines to meet to participate in the program. The loan must be owned or backed by Freddie Mac or Fannie Mae for these modifications. 

In contrast, lenders have their programs known as private or proprietary modifications. It is most common when the lender has the loan in its investment portfolio.

Reduces taxes on the home

Most mortgage payments include homeowner’s insurance premiums and taxes. You can reduce your annual taxes and dividends, thus reducing your mortgage loan.

To do this, check with your local government about requesting a real estate tax assessment. The assessment will show the property’s value from the provincial government’s point of view. The tax bill will decrease if the county agrees to reduce the examination.

If you can lower your tax bills, you can ask the lender to analyze your escrow account for lower bills. It will reduce your monthly mortgage payment.

Make one extra payment a year

You are entitled to make an advance payment on your mortgage at any time of the year. You do this by creating a second separate payment to the lender. It reduces the length of a new 30-year mortgage by more than four years.

To understand the savings involved, multiply four years of payments by your monthly principal plus the interest owed. The result is the money you’ll save by making an additional payment each year.

Make rounded payments

When your mortgage payment is due, round up to the nearest $100. If the cost is $1,350, send the lender $50 more. The lender will apply the additional cash paid to the principal balance, reducing what you owe.

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Rounding will not have the same result as the additional monthly payment; however, it will make a considerable dent in long-term costs. This option can shorten the loan term by two years or more.

Reduce the mortgage

This method only works with conventional loans and if you have a lump sum of cash available. You would only pay some money on the principal loan balance, and then you must ask the lender to recalculate the mortgage payment based on the lower ratio.

For example, if you have inherited $75,000 and still owe $200,000 on the house. There are 20 years left on the 30-year mortgage, so the current payment is $1,350. Paying off the $75,000 balance and shifting the new loan balance over the remaining 20 years reduced the amount to about $900.

When refinancing is not an option

When you contact your lender and state your case, ask, how you can lower your mortgage rate without refinancing. And remember that there is a good chance that they will help you because they don’t want you to foreclose. After all, they would ultimately lose money.

Refinancing involves a new mortgage loan while going through the process from the beginning. However, some people consider doing it because they want to get out of an adjustable-rate mortgage or need to get cash out of the house.

However, there are ways to reduce the mortgage interest rate with a modification or refinance, but options other than refinancing are also available to the homeowner.

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