How to Get a Better Mortgage Rate and Lower Your Monthly Payment

Proven strategies to reduce what you pay for your home loan, from strengthening your credit profile to challenging PMI and appealing property taxes

Your mortgage interest rate has an outsized impact on your total homeownership costs. Even a small rate reduction can translate to tens of thousands of dollars in savings over the life of your loan. With the average 30-year fixed mortgage rate hovering around 6% as of December 2025, borrowers who take strategic action to improve their financial profile and negotiate effectively can secure significantly better terms than passive applicants who accept the first offer they receive.

Beyond the interest rate itself, your total monthly payment includes several components that savvy homeowners can challenge or eliminate. Private mortgage insurance (PMI), property taxes, and various fees all contribute to your housing costs. This guide covers every legitimate strategy to reduce what you pay, from preparation steps before you even apply for a mortgage to ongoing tactics for lowering payments on your existing loan.

Strengthen Your Financial Profile Before Applying

The mortgage rate you receive depends heavily on how lenders perceive your risk as a borrower. Before you start shopping for loans, take time to optimize the factors that determine your rate offer. This preparation phase can save you more money than any negotiation tactic applied after the fact.

Improve Your Credit Score

Your credit score is the single most influential factor in your mortgage rate. FICO scores in the 740-850 range qualify for the best available rates, while scores in the 670-739 range are considered "good" and may result in rates 0.25% to 0.5% higher. Borrowers with scores below 670 face significantly higher rates or may need to consider government-backed loan programs with more flexible requirements.

To improve your credit score before applying for a mortgage, focus on paying all bills on time, reducing credit card balances to lower your credit utilization ratio, and keeping existing credit accounts open even if you no longer use them. One effective technique is requesting a credit limit increase on existing cards without increasing your spending. This immediately lowers your utilization percentage, which can boost your score.

Lower Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) represents the percentage of your gross monthly income that goes toward debt payments. Lenders typically prefer a DTI of 36% or lower, though some loan programs allow higher ratios. A lower DTI not only helps you qualify for a mortgage but can also result in better rate offers.

To reduce your DTI, pay down existing debts before applying, especially high-interest credit card balances. Avoid taking on new debt in the months leading up to your mortgage application. If possible, increase your income through a raise, bonus, or side work that you can document for lenders.

Save for a Larger Down Payment

The amount you put down directly affects your loan-to-value ratio (LTV) and the rate you receive. Borrowers who put down 20% or more typically qualify for the best rates and avoid private mortgage insurance entirely. Even if you cannot reach 20%, every percentage point above the minimum down payment requirement strengthens your application.

A larger down payment also means borrowing less overall, which reduces your monthly payment and total interest costs. For a $400,000 home, the difference between a 10% down payment and a 20% down payment represents $40,000 less in borrowed principal, saving you tens of thousands in interest over a 30-year term.

Shop Around and Compare Multiple Lenders

Failing to compare offers from multiple lenders is one of the most expensive mistakes homebuyers make. Different lenders may offer rates that vary by 0.5% or more for the same borrower, and the difference in fees can amount to thousands of dollars. The effort required to get multiple quotes is minimal compared to the potential savings.

Get Preapproved with Multiple Lenders

Apply for preapproval from at least three to five lenders, including a mix of large national banks, local credit unions, and online mortgage companies. Credit inquiries for mortgage applications within a 45-day window are treated as a single inquiry for scoring purposes, so shopping around will not significantly impact your credit score.

When comparing offers, look beyond the interest rate to examine the annual percentage rate (APR), which includes fees and gives a more accurate picture of total borrowing costs. Also compare origination fees, discount points, and closing costs. Some lenders advertise low rates that require purchasing expensive points, while others offer higher rates with lower upfront costs.

Consider Using a Mortgage Broker

A mortgage broker can gather rate quotes from multiple lenders on your behalf, potentially saving you time and uncovering options you might not find on your own. Brokers often have access to wholesale rates and may be able to negotiate better terms. However, compare any broker-sourced offers with quotes you obtain directly from lenders to ensure you are getting the best deal.

Strategic Loan Choices That Lower Your Rate

The type and term of your mortgage significantly affects your interest rate. Understanding these options allows you to choose a loan structure that balances your monthly budget with long-term costs.

Consider a Shorter Loan Term

A 15-year mortgage typically carries an interest rate 0.5% to 0.75% lower than a 30-year mortgage. As of December 2025, while 30-year rates average around 6%, 15-year rates average closer to 5.37%. The shorter term also means you build equity faster and pay dramatically less interest over the life of the loan.

The tradeoff is a higher monthly payment because you are repaying the principal in half the time. On a $300,000 loan, the monthly principal and interest payment would be approximately $1,799 for a 30-year term at 6% versus $2,386 for a 15-year term at 5.37%. While the monthly payment is $587 higher, you would save over $130,000 in total interest and own your home free and clear in half the time.

Explore Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) offer lower initial rates than fixed-rate loans. A 5/1 ARM or 7/1 ARM provides a fixed rate for the first five or seven years before adjusting annually. If you expect to sell or refinance within that initial period, an ARM can provide substantial savings.

ARMs carry risk if rates rise significantly before you sell or refinance. However, they can be a strategic choice for buyers who are confident about their timeline. A buyer planning to relocate in five years might save tens of thousands with an ARM's lower initial rate compared to a 30-year fixed loan they would not keep long enough to benefit from rate stability.

Look Into Government-Backed Loans

FHA loans backed by the Federal Housing Administration often carry lower rates than conventional loans and have more flexible qualification requirements. They are particularly beneficial for buyers with credit scores between 580 and 669 who might not qualify for the best conventional rates. However, FHA loans require mortgage insurance premiums (MIP) that can persist for the life of the loan if you put down less than 10%.

VA loans for eligible veterans and service members typically offer the best rates available, with no down payment requirement and no private mortgage insurance. USDA loans for rural and suburban properties also offer competitive rates with zero down payment options for qualifying buyers.

Buying Discount Points to Lower Your Rate

Discount points are fees you pay at closing to reduce your interest rate. One point costs 1% of your loan amount and typically reduces your rate by approximately 0.25%, though the exact reduction varies by lender and market conditions.

How Points Work

On a $300,000 mortgage, one discount point would cost $3,000. If that point reduces your rate from 6.75% to 6.5%, your monthly principal and interest payment drops from $1,946 to $1,896, saving you $50 per month. At that rate, it takes 60 months (five years) to recoup the upfront cost through monthly savings.

When Points Make Sense

Buying points is most beneficial when you plan to stay in your home for many years and have available cash that is not needed for your down payment or emergency reserves. Points are also tax-deductible in the year you purchase your home, which can reduce the effective cost. However, if you might relocate within five years or expect rates to drop significantly (making refinancing attractive), skip the points and preserve your liquidity.

First-Time Homebuyer Programs and Special Financing

Many state and local programs offer reduced rates, down payment assistance, and other benefits for qualifying buyers. These programs are often underutilized because buyers do not know they exist.

State Housing Finance Agencies

Most states operate housing finance agencies that offer below-market mortgage rates for first-time buyers, buyers in certain professions (teachers, healthcare workers, first responders), or buyers purchasing in designated areas. Many programs also provide down payment assistance grants or forgivable loans that effectively reduce your cash requirement.

Research your state's programs through your first-time homebuyer program options and connect with lenders who participate in these initiatives. Qualification requirements vary but often include income limits and purchase price caps.

Employer and Professional Programs

Some employers offer housing assistance as a benefit, including down payment grants, rate buydowns, or closing cost contributions. Unions, professional associations, and membership organizations may have negotiated mortgage discounts with specific lenders. Ask your HR department and any professional groups you belong to about available programs.

How to Eliminate Private Mortgage Insurance

If you put down less than 20% on a conventional loan, you are likely paying PMI, which can add $100 to $300 or more per month to your payment depending on your loan size and credit score. Eliminating PMI is one of the most impactful ways to reduce your ongoing housing costs.

Understanding Your PMI Cancellation Rights

Under the Homeowners Protection Act, you have specific rights regarding PMI cancellation on conventional loans originated after July 29, 1999. Your lender must automatically terminate PMI when your loan balance reaches 78% of the original property value, as long as you are current on payments. However, you can request cancellation earlier.

Challenge PMI Based on Home Value Appreciation

If your home has appreciated significantly since purchase, you may have already reached the 80% LTV threshold even if your payments have not gotten you there yet. You can request PMI cancellation based on current property value rather than original value. Your lender will typically require a new appraisal at your expense, which costs $300 to $600.

To pursue this option, contact your loan servicer and request their specific requirements for PMI cancellation based on current value. Most lenders require that you have owned the home for at least two years, that you are current on payments with no late payments in the past year, and that you can demonstrate 20% equity through a formal appraisal.

Refinance to Eliminate PMI

If you have at least 20% equity but your servicer is uncooperative about PMI cancellation, refinancing into a new conventional loan without PMI may be worth considering. This is especially attractive if current rates are lower than your existing rate. However, weigh refinancing costs (typically 2% to 6% of the loan amount) against your PMI savings to ensure the math works in your favor.

FHA Loans Have Different Rules

FHA mortgage insurance premiums (MIP) work differently from conventional PMI. For FHA loans originated after June 3, 2013, if you put down less than 10%, you must pay MIP for the entire loan term. If you put down 10% or more, MIP drops off after 11 years. The only way to eliminate FHA MIP early is to refinance into a conventional loan once you have sufficient equity.

Appeal Your Property Tax Assessment

Your property taxes are based on your home's assessed value, and assessors sometimes get it wrong. If your assessment seems too high compared to similar homes or recent market conditions, you have the right to appeal. A successful appeal can reduce your tax bill by hundreds or even thousands of dollars annually.

How Property Tax Assessments Work

County assessors use mass appraisal techniques that prioritize efficiency over property-specific accuracy. They rely on data models that estimate values based on comparable sales, square footage, lot size, and other factors. These models often miss unique property characteristics, interior condition issues, or hyper-local market nuances that affect your home's true value.

If the assessed value significantly exceeds what you could realistically sell your home for, you likely have grounds for an appeal. Similarly, if your home is assessed at a higher percentage of market value than comparable properties in your area, you may have a case for unequal treatment.

Steps to Appeal Your Assessment

The appeals process varies by jurisdiction but generally follows a similar pattern. First, review your assessment notice and understand the basis for your property's valuation. Compare your assessed value to recent sales of similar properties in your neighborhood and to the assessments of comparable homes.

If you believe your assessment is too high, gather evidence including recent appraisals, comparable sales data, photographs documenting property condition issues, and assessments of similar neighboring properties. Most jurisdictions allow informal discussions with the assessor before requiring a formal appeal, and many disagreements can be resolved at this stage.

Evidence That Wins Appeals

The most effective evidence for assessment appeals includes recent professional appraisals of your property, documentation of comparable home sales at lower values, proof of property condition issues that reduce value (deferred maintenance, structural problems, functional obsolescence), and evidence that similar properties in your area are assessed at lower values. Photographs and detailed documentation strengthen your case significantly compared to simply stating that you believe the assessment is unfair.

When to Hire Professional Help

For modest potential savings, filing your own appeal makes sense. However, for high-value properties or complex situations, hiring a property tax attorney or appeal specialist may be worthwhile. Many work on contingency, taking a percentage of the tax savings they achieve, which means you pay nothing if the appeal fails.

When Refinancing Makes Sense

Refinancing replaces your existing mortgage with a new loan, potentially at a lower rate or with different terms. While refinancing has costs, it can deliver significant savings under the right circumstances.

The Rate Reduction Threshold

A common rule of thumb suggests refinancing when you can reduce your rate by at least 0.5 to 1 percentage point. However, the real question is whether your savings will exceed your costs within a reasonable timeframe. Calculate your break-even point by dividing your total refinancing costs by your monthly savings. If you plan to stay in the home beyond that point, refinancing likely makes sense.

Refinancing costs typically range from 2% to 6% of the loan amount. On a $300,000 mortgage, that means $6,000 to $18,000 in fees. If refinancing saves you $200 per month, a $12,000 closing cost means a 60-month break-even period. Ensure you will own the home at least that long before refinancing makes financial sense.

Cash-Out Refinancing Considerations

Cash-out refinancing lets you borrow against your home equity, receiving the difference between your new loan amount and your current balance as cash. While this can fund home improvements, debt consolidation, or other needs, it increases your loan balance and may raise your rate. Use cash-out refinancing cautiously and only for purposes that genuinely improve your financial situation.

Streamline Refinancing Programs

If you have an FHA, VA, or USDA loan, you may qualify for streamline refinancing with reduced documentation and faster processing. These programs are designed to help existing government loan borrowers take advantage of lower rates with minimal hassle. VA Interest Rate Reduction Refinance Loans (IRRRLs) and FHA Streamline Refinances often require no appraisal and minimal credit verification.

Additional Strategies to Reduce Housing Costs

Review Your Homeowners Insurance

While not part of your mortgage itself, homeowners insurance is typically included in your escrow payment. Shop your insurance annually to ensure you are not overpaying. Bundling with auto insurance, increasing your deductible, and installing safety features can all reduce premiums.

Challenge Your Escrow Account

If your escrow account holds more than necessary, you may be able to request a refund of excess funds or reduce your monthly escrow payment. Review your annual escrow statement and contact your servicer if the balance seems higher than required to cover upcoming tax and insurance payments.

Consider Biweekly Payments

Paying half your mortgage payment every two weeks instead of one full payment monthly results in 26 half-payments (13 full payments) per year instead of 12. That extra payment goes directly to principal, reducing your balance faster and saving interest over the life of the loan. Some servicers offer this option directly; others require you to set up automatic transfers yourself.

Taking Action to Lower Your Mortgage Costs

Reducing your mortgage rate and monthly payment requires a combination of preparation, comparison shopping, and ongoing vigilance. Before applying for a mortgage, strengthen your credit score, reduce your debt-to-income ratio, and save for the largest down payment you can manage. When shopping for loans, compare offers from multiple lenders and negotiate using competing quotes as leverage.

Once you have a mortgage, continue looking for savings opportunities. Challenge PMI as soon as you believe you have reached 20% equity, whether through payments or home appreciation. Review your property tax assessment annually and appeal if it exceeds fair market value. When rates drop significantly below your current rate, evaluate whether refinancing makes financial sense given your timeline and costs.

Every dollar you save on housing costs is a dollar available for other financial goals: building an emergency fund, investing for retirement, funding education, or simply enjoying life. The strategies in this guide can collectively save tens of thousands of dollars over your homeownership journey. Take action on even a few of them, and you will be well on your way to more affordable homeownership.

For more guidance on managing home purchase costs, explore our resources on understanding closing costs and determining how much house you can afford.