How do I pay down my mortgage faster?

Sam

Borrowers often intend to pay off their mortgage much before the loan period ends. But the pre-payment option varies with respect to different lending institutions. Here are the ways by which you pay off your mortgage faster.

Bi-weekly payment option:
You can pay half of your monthly payment in every 2 weeks and thus reduce the amortization period.
Increase the amount of your payments:
You can increase the amount of your monthly payment for a limited time frame. The increase in the amount depends upon your lender and the type of mortgage that you manage. But the only disadvantage is that the increase in payment becomes permanent. So you need to make sure that you can continue with the higher payments till the end of the loan term.
Making extra payments on payment dates:
You can make extra payments on your mortgage at the payment date itself. The extra amount is paid towards the principal, which helps to reduce your loan balance.
Paying a lump sum amount:
Several lending institutions may allow you to pay a huge amount towards the principal loan balance. This helps in reducing the loan balance and hence saves a lot of interest payments. You may have to pay 20% or higher of the loan amount. You may pay the lump sum amount once a year or as decided upon by your lender.
Renew the loan at lower rates but keep the payments unchanged:
When you renew your mortgage, you may get a lower interest rate that can reduce your future payments. But if you can maintain the previous payments, then the difference between that payment and the current payment is applied towards the principal. This helps in lowering the balance so that you can pay off the mortgage faster.

This method of pre-paying your mortgage is indeed a favorable option, as it does not affect your budget and expenses. You accelerate your payments by carrying on with the same payments that you were used to making as per the previous terms and conditions of the mortgage.

Guest

My mortgage amount is 100,000. My payment is 821.92 over 30 yrs. If I pay 900.00 a month will that make any signifigant difference. What should I do if I can't make an extra payment every month?

Guest

Hi,

If you make extra payments on your mortgage, it can help to reduce the interest portion of your mortgage.

Caron · Posted: Fri Aug 11, 2006 10:41 am Post subject: RE: Extra loan payments

Hi,

If you pay $900 instead of $821.92, you will be saving a good amount of cash in the form of long term interest payments. This is because you will be able to prepay the loan. Your monthly payments will be higher with the extra payments being made towards the principal thereby reducing the loan balance.

In case, you fail to pay the extra sum every month, you should talk to your lender about your limitations. Perhaps he will revise the payment plan as per your convenience. But you have to be regular on your payments for that.

Use the Time Period Calculator to find out by what time period you can prepay the loan with extra payments. This will help you to calculate your savings.

Thanks,

Caron.

Guest

Bullionrose,

You should also make sure that the lender has not set any pre-payment penalty. And if it is there then it is for how many years.

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