💰 Higher Down Payment

Making a larger down payment reduces your loan amount, which directly lowers your monthly payment. Additionally, a down payment of 20% or more eliminates Private Mortgage Insurance (PMI), saving you $100-300+ per month.

• 10% down: Lower loan amount, but PMI required (~0.5-1% of loan annually)
• 20% down: No PMI, significantly lower monthly payment
• 25%+ down: Best rates, lowest payment, faster equity building

📉 Buying Points (Discount Points)

Mortgage points allow you to "buy down" your interest rate by paying an upfront fee. Each point typically costs 1% of your loan amount and reduces your rate by 0.25%.

• Example: On a $300,000 loan, 2 points ($6,000) might reduce rate from 6.5% to 6.0%
• Monthly savings: ~$90/month on a $300k loan
• Break-even: Typically 5-7 years if you plan to stay in the home
• Best for: Long-term homeowners who want lower payments over time

⏱️ Extending Loan Term

Choosing a 30-year loan instead of 15-year significantly reduces monthly payments, though you'll pay more interest over time.

• 30-year vs 15-year: ~40% lower monthly payment, but 2x total interest
• Flexibility: You can always make extra payments to pay off early
• Trade-off: Lower payment = slower equity building and higher total cost

🔄 How to Lower Mortgage Payment Without Refinancing

You can reduce your monthly payment without the costs and hassle of refinancing:

• Loan Recasting: Make a large lump-sum payment (typically $5,000+) toward principal, then request your lender to "recast" the loan. They'll recalculate your monthly payment based on the new lower balance, keeping the same interest rate and term. One-time fee: $150-500. Saves hundreds per month without refinancing.
• Remove PMI Early: If your home has appreciated or you've paid down the loan to 20% equity, request PMI removal. This can save $100-400/month. You'll need an appraisal ($300-600) proving your home value.
• Request Loan Modification: If you're facing financial hardship, lenders may extend your term (e.g., 30-year to 40-year) to lower payments. This affects your credit but avoids foreclosure.
• Shop for Better Insurance: Homeowner's insurance is part of your escrow. Getting quotes and switching to a cheaper policy can reduce your monthly payment by $20-100/month.
• Appeal Property Taxes: If your home's assessed value is too high, appealing can lower your property tax bill, reducing your monthly escrow payment.

📊 Principal vs Interest Breakdown (Year 1)

Understanding how your payment is split between principal and interest helps you see why interest is "front-loaded" in amortization:

Example: $300,000 loan at 6.5% for 30 years

• Month 1: $1,896 payment = $1,625 interest (86%) + $271 principal (14%)
• Month 12: $1,896 payment = $1,605 interest (85%) + $291 principal (15%)
• Year 1 Total: $22,752 paid, but only $3,500 goes to principal—the rest is interest!

Why Interest is Front-Loaded: Early in the loan, your balance is highest, so interest charges are highest. As you pay down principal, the interest portion shrinks and more of each payment goes to principal. By year 15, roughly 50% of each payment goes to principal. By year 25, about 75% goes to principal.

This is why making extra payments early in the loan saves the most interest—you're reducing the balance when interest charges are highest.