This under-the-radar mortgage hack is saving some Americans thousands of dollars per year. Here's what you need to know

Finally, it’s time to negotiate terms. Be prepared for rejection. After all, the lender has its agreement and isn’t obligated to change the terms. But if your lender is open to it, be ready to discuss possible fees associated with the modification. While some lenders may charge a nominal fee, it’s often significantly less than the costs associated with refinancing.

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Why consider a rate modification now?

Though interest rates are dropping they remain relatively high, so homeowners with mortgages locked in at higher rates stand to benefit significantly from a lower rate. The typical costs and hassles associated with refinancing — closing costs, appraisal fees, and extensive paperwork — are enough to send anyone looking for something better.

A rate modification gets around many of these hurdles. Since you’re merely adjusting the terms of the existing loan, the process is usually faster and cheaper, and involves less paperwork.

Obtaining or making changes to your mortgage can have long-term implications so it might be worth talking to a financial advisor to create a plan or find out all of your options depending on your goals.

If you need help finding one, Advisor.com connects you with vetted fiduciary financial advisors near you. All you have to do is answer a few simple questions about your finances, and Adivsor.com matches you with a certified expert that matches your needs and situation.

You can then set up a free consultation — with no obligation to hire — to see if they’re the right fit for you.

How can it save you money?

Here’s why it’s worth asking your lender.

Suppose you have a $300,000 mortgage with a 30-year fixed rate at 5%. Your monthly principal and interest payment would be approximately $1,610. If market rates drop and your lender agrees to modify your interest rate to 4%, here’s how the numbers change:

New monthly payment: Approximately $1,432

Monthly savings: $178

Annual savings: $2,136

Extra considerations

While typically lower than refinancing costs, some lenders may charge a fee for modifying the loan. Ensure that the savings outweigh any expenses.

Secondly, confirm that other loan terms remain the same. Some lenders might try to adjust other aspects of the loan during modification. Also, unlike refinancing, a rate modification generally doesn’t require a hard credit check and shouldn’t affect your credit score.

To sum up, refinancing can be more expensive than you think. On average, the total cost of refinancing can range from 2-6% of the total loan amount.

If you are thinking about buying a house now with hopes of refinancing in the future, it might not be the bargain you think it is. Rather, you might save substantially just by doing some research to try to get the best possible quote on your new mortgage.

According to a report from LendingTree, shopping around for a mortgage can help you save an average of $76,410 over the lifetime of a 30-year fixed-rate loan.