How to Get a Low Mortgage Payment⎯My 10 Favorite Ways to Pay Less in 2024.

“Hey Rick. How do I get my mortgage payment lower?”

Well, imagine your mortgage payment as light and manageable as a breezy day, not a stormy financial burden! As someone who’s navigated the turbulent seas of mortgages for over 25 years, with extensive experience in VA loans, I’ve assembled some not-so-obvious strategies to tame that daunting mortgage payment.

In this article, I’ll share my top 10 tactics for how to get a low mortgage payment in 2024 and beyond. Get ready to shrink your mortgage payment down to size and save enough to splurge on those little joys of life – like an extra topping on your Friday night pizza!

What are the best ways to lower my monthly mortgage payment?

1. Get a Lower Permanent Interest Rate

Well duh Rick… but keep reading, it’s not that obvious.

Obviously, the foundation of securing the lowest mortgage payment is obtaining a low interest rate. A lower rate not only translates to a reduced monthly payment but also lowers the overall cost of borrowing.  

When purchasing a home, one tactic you can use is to negotiate with the seller to contribute towards lowering your interest rate.  This is using ‘seller concessions’ to do what is called ‘buying the rate down’ or ‘paying points’. Contrary to the nay-sayers out there, this can be done in even the fiercest of Seller markets.  This ‘Seller Paid’ interest rate buydown can be structured as either a permanent or via a temporary buydown. More on that later.

Both are both highly effective ways to get the best mortgage rate and lower your payment.

Every market is different so my advice on a ‘permanent’ or ‘temp’ rate buydown may change. But just so we are clear, a permanent interest rate buydown entails the seller (or borrower) making a one-time payment to reduce the interest rate which will persist throughout the life of the loan.

2. Get a 3% Lower or Other Temporary Buydown

As mentioned above, a permanent interest rate buydown entails the seller making a one-time payment to reduce your interest rate, which will persist throughout the life of the loan. In contrast, a temporary buydown is a fixed-rate mortgage with a seller-paid subsidy deposited into your escrow account, effectively lowering your interest rate for up to 36 months. 

The term of your buydown depends on… well on the type of buydown you get.  For example, a 2-1 buydown would lower your rate and payments for the 2 years, 2% in Year 1 and 1% in year 2.  A 1-0 buydown would only be a lower rate and payment for the first year. 

However, what I recommend is a 3-2-1 Seller-Paid buydown.  This drops the buyer’s rate and payments for 3 years.  3% Lower in Year 1, 2% Lower for Year 2 and finally 1% lower in year 3. This strategy is REALLY good for both the Buyer AND Seller.

For a more in-depth insight into the art of negotiating seller concessions, seller subsidies and buydowns, you can see the video I did about this on below.

3. Increase Your Down Payment to Get a Lower Payment

An effective way to secure a more favorable monthly mortgage payment sometimes has nothing to do with how to get the best mortgage rate but rather it’s to increase your down payment. Simply put, the less you borrow, the lower your monthly payments will be. So, maybe consider options, such as receiving a gift from a family member or tapping a 401(k) or TSP (Thrift Savings Plan).

Disclaimer: I am not a big proponent of using retirement funds for a home purchase, but if it’s the only way to make the deal work, then in some cases, I’m all for it.

One significant advantage of 401(k) or TSP loans is that you are essentially borrowing from yourself, and repayments come directly from your pre-tax paycheck. Furthermore, it doesn’t adversely affect your investment returns because you’re repaying yourself.  To dive deeper into the intricacies of using retirement funds for your down payment to lower your mortgage payments, send me an email.

4. Invest in Multi-Unit Properties for the Lowest Overall Payment

An often-overlooked strategy to lower your mortgage payment and secure the best mortgage rate is to invest in multi-unit properties. While this might not directly reduce your mortgage payments, it utilizes the rental income from additional units in the property to offset the overall mortgage expense. For instance, if you buy a duplex in a prime location and rent out one unit for $2,000 per month, you could effectively reduce your mortgage payments by $2,000.

One of my borrowers bought a 4 unit in Washington DC.  The husband and wife lived in one of the units and rented out the other 3.  The rent on the 3 other, non-owner-occupied units more than covered the monthly mortgage payment.  They are currently living for FREE!  Correction, their renters are paying the mortgage payments AND helping them increase their equity every month.

Note also that investing in multi-unit properties can increase your borrowing capacity, allowing you to qualify for a more substantial home loan.  In the example above, the more units, the more potential income.  To explore this strategy further please send me a note or email me with your question.

5. Consider an Adjustable-Rate Mortgage (ARM)

While not always the best choice, an Adjustable-Rate Mortgage (ARM) can offer lower interest rates in specific market conditions and thereby get you the lowest mortgage payment. ARMs differ from traditional 30-year fixed-rate mortgages by locking in your interest rate for a predetermined period, typically five, seven, or ten years. During this period, your rate is fixed at a lower interest rate than a 30-year fixed-rate mortgage.

Side Note: I’ve seen many times in my career, especially in times of high inflation, that the ARM rate is actually higher than the 30 Year Fixed. Just be sure you look at all the options with a professional.

An ARM can be an ideal option if you plan to stay in your home for a shorter duration, such as 3 to 5 years since it could allow you to take advantage of lower initial rates, albeit temporary.

6. Shop Around for Lenders to see if you can lower your rate

Not all mortgage lenders are created equal, and this is particularly evident in the realm of mortgage financing. The mortgage market is diverse, offering a wide array of loan products, including VA loans, FHA loans, first-time homebuyer loans, and investor loans like Debt-Service Coverage Ratio (DSCR) loans, etc. Sometimes you just gotta shop around to see if that can lower your mortgage payment.

Sometimes it’s about the structure. I mentioned some different programs, right? Sometimes going with an FHA loan may beat out the mortgage payments of a conventional loan if your credit isn’t so good. You can also structure your loan with prepaid mortgage insurance and tap the seller with the bill. These are just a couple examples of structure but be sure and talk to a few people that know their craft.

Personally, I feel that transparency is key when evaluating lenders. Look for lenders who openly display their rates on their websites. Also, question lenders that ‘come back’ with a better deal after they know you are shopping around. This is a game played with many lenders out there trying to milk the consumer with as much as possible until they know they are competing.

I love my company’s transparent approach, and you can find our rates on our website and compare.  By comparing rates and loan terms from various lenders, you can make a more informed decision.

I would be not too focused on rate only. Find a happy medium with perhaps the lender you like the most and who has a competitive rate. If you get both the best loan officer and rate, then congrats on winning the loan officer lottery!

7. Improve Your Credit Score for a Better Rate and Lower Payment

Your credit score plays a significant role in determining the mortgage rate and corresponding mortgage payments you’ll get.  All borrowers should focus on improving their credit score. But apply FIRST. Don’t get sucked into trying better your scores on your own. A good lender has ways to help.

As you read through the below ways to improve your credit score, or maintain a high score, just know that every 20 points is a milestone that can affect your rate!  If you find yourself sitting at 739, then getting to 740 is a BIG DEAL.  A 640 score is a cutoff to no-mans-land for many lenders as well.  Anything above 760 is treated as ideal and you will get the best terms.

Credit Scores can be manipulated!

Many times, improving your score comes down to paying one or multiple ‘specific debts’ down to a ‘specific number’.  Most lenders can run what is called a ‘Wayfinder Report’ which will tell the borrower exactly what they need to do to get to a desired credit score. 

You should follow this to a ‘T’ and don’t do what feels right.  Just follow the model, get your scores higher, close on your loan and then do whatever you want.

Paying bills on time

I shouldn’t have to say this but… pay your bills on time! Get on autopay if you have difficulty with organization. You have to ensure that all your bills, including credit card payments, loans, and especially your taxes are paid promptly to get a good credit score.

Reducing outstanding debts

Work on paying down high-interest debts and reducing credit card balances to improve your credit utilization ratio.  Good usage is about 30% of your limit.  Try to stay at or below that number.  Remember what I said above. If your lender runs the Wayfinder Report, do exactly what it says… no more, no less.

Avoiding new credit inquiries

Avoid opening new credit accounts or applying for credit shortly before seeking a mortgage, as multiple inquiries can temporarily lower your credit score.  And WATCH OUT if you are financing a car through a dealer.  If you MUST get a car before buying a home, make sure they only submit your financing request through only ONE of their lenders.  Some car dealerships send your file to multiple financial institutions who ALL PULL YOUR CREDIT.  This will TANK your credit score. The best strategy is to visit your bank or credit union before you go into the dealership with a pre-approved amount. Don’t let them pull credit unless there is a major financial benefit.

Hire a credit repair company

Credit repair companies offer specialized services aimed at helping individuals improve their credit scores. These companies are experts in navigating the world of credit reporting and financial management. Getting a higher score is really just a game. The game is simple. Identify errors and inaccuracies (or things you just want to get rid of) on your credit reports, challenge and remove these discrepancies. The credit repair companies have the game down to a science. Most of the creditors you will fight against won’t be able to keep up with the barrage of demands and letters that have to respond to ‘by law‘ thereby forcing the creditor to delete delinquency.

It doesn’t always work out like that, but a good credit company and almost guarantee you a better score in under 120 days. So, if you are thinking of buying a home and have some work to do with your credit scores, start now.

How do you start?

First, have a lender do a tri-merged soft pull. Not all lenders will do a soft pull so If you need help with that, just send me an email to rick.elmendorf@rate.com and I’ll take care of you. Don’t worry, it’s free. This gives us a baseline and a good lender can tell you if you just need to manipulate the scores or have to go in for a full credit repair.

Second, get in touch with the credit repair company and sign up. You’ll have to pay a monthly fee, but trust me, it’s worth it. The difference in loan costs for every 20 points is well worth the bucks on credit repair.

Lastly, check in every 30 to 60 days with your lender to check in. They should be in touch with the credit repair company so they know when you can pull the trigger.

So, whether you’re recovering from financial missteps or simply seeking to improve your credit standing, a credit repair company can be a home run in getting a lower mortgage payment.

Higher scores mean a-lot!

It goes without saying that by diligently managing your credit, you can boost your credit score and qualify for a more favorable mortgage rate and get a lower payment.

8. Check with your Bank for Jumbo Rates

Banks typically have better rates for Jumbo mortgages.  ‘Jumbos’ are loans that exceed the conforming loan limits of the county you are buying in.  Banks sometimes have more advantageous ARM options than do non-bank lenders which, as mentioned earlier, can lower your mortgage payment. 

Additionally, if you bank with one of the biggies, i.e. Bank of America, Wells Fargo or Chase, you may qualify for discounted rates and payments if you have money on deposit and/or are a wealth client.

Banks are brutal.

If you work as a loan officer at a bank, you know I speak the truth. I guarantee that most of the horror stories about getting a loan was from someone who tried to finance through a bank or credit union. Sorry Charlie, but it’s true. So, as you are getting that low rate through the bank, just remember that it may come at a cost to your sanity (and hair count).

In all seriousness, just be patient and give them everything they ask for. The process will be over before you know it and although it was stressful, you did the right thing to lower your mortgage payment.

9. Shorten the Term for a Lower Rate

Sometimes a lower rate doesn’t mean you lower your mortgage payment. Sorry!  When you get a shorter mortgage term such as a 15 Year Loan, you will get a lower rate, but not a lower monthly payment. Here’s why.

Principal Repayment

When you take out a mortgage, the amount you borrow is known as the principal. Over the life of the loan, you need to repay this principal balance to the lender.  With a shorter mortgage term, such as a 15-years, you have less time to repay compared to a longer-term loan, like a 30-year loan.

Interest Accumulation

In addition to repaying the principal, you also pay interest to the lender for borrowing the money. Interest is calculated as a percentage of the remaining principal balance. 

Refinancing to a lower mortgage rate will most always save you money. On your current loan, no matter how long you’ve had it, you still only accrue interest on the amount that you owe. Just because you may be ‘starting over’ doesn’t mean it’s not worth.

With a shorter mortgage term, you have fewer years to spread out the interest payments, so the interest is less, and principal is more.

Higher Monthly Payments

Because you’re repaying both the principal and the interest over a shorter time frame, the monthly payments on a shorter-term mortgage are higher than those on a longer-term mortgage.  Shorter term mortgages force a higher monthly payment to pay back the ‘Principal’ in the expected time frame.

10. Combine Strategies for Maximum Impact

Successful borrowers often use a combination of these strategies to maximize their rate reduction and lower their monthly payment.  For example, imagine negotiating a substantial seller concession that is applied towards both a permanent and temporary buydown on a multi-unit property—this synergy can significantly impact your monthly mortgage payment.

Some borrowers have combined and executed these strategies to reduce and even eliminate housing costs.

And by combining strategies, you can fine-tune the approach to suit your unique circumstances and financial objectives.  It’s super-important to consult with a knowledgeable mortgage professional to craft a strategy that aligns with your goals and secures the best possible mortgage rate.

Conclusion

Can you actually get the lowest possible mortgage payment?  By following the 10 strategies I’ll bet you can!  If you have any follow up questions, don’t hesitate to leave me a comment or connect with me by phone or email.

If you are looking to buy a new home within the next 6 to 12 months, I encourage you to read the below article. Becoming a better homebuyer is not rocket science and those that plan ahead will win the homebuying game.