You have to analyze, what exactly your period payment consists of. The two biggest parts are the principal and the interest. In the early years they will very likely be accompanied by PMI. Under other circumstances unchanged, reducing any of these three components will result is a lower monthly payment.

First of all, PMI has to be terminated as soon as the outstanding balance hits the 80% of the purchase (or recently appreciated) price of your property. If you are ready to wait that long, that is. Going down from, say, 90% to 80% can take over 10-years! Terminating the insurance is not an easy business either, but when you do manage to get rid of it, you will immediately feel the difference. Read about the troubles and tribulations involved in my special article.

The amount paid towards the interest is a percentage of the outstanding balance (the principal). The lower the balance, the lower the interest payments. If your mortgage carries no principal prepayment penalties (any more), the most effective way to reduce the balance faster is extra payments. Yes, they may cause you some temporal inconvenience, but they do pay off. Simply calculate how much you can afford to invest into an extra payment (one or several) without depriving yourself of too many joys of life, and see how much it will reduce your monthly financial burden.

Cutting the principal part of the monthly payments down is not really recommended as it will slow down the process of the mortgage debt repayment. If you are desperate, you can try to refinance into an interest-only mortgage (your monthly payment will include no principal part at all for a certain period of time) or into a longer-term mortgage. Say, you have 10 years left on your current mortgage and you refinance for the same outstanding amount into a 30-year mortgage. The same sum gets stretched over a longer period of time and thus each monthly payment is lower. However, all other conditions of the new mortgage have to be favorable. This way also requires some cash, for refinancing is not cheap.

Today I suggest we talk about the so-called “no-cost” refinancing. First of all, this commonly used name for a refinancing option one can find very useful under certain circumstances is in fact rather misleading, because:

• No-cost does not mean free from any costs;
• No-cost refinancing helps you only with the Non-Recurring Closing Costs;
• No-cost refinancing still leaves you to pay at least Property Taxes, Interest, and Insurance.

Now that you’ve been warned, let’s take a closer look and find out about the circumstances under which this option can be useful.

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