Paying down a mortgage loan can lessen your monthly financial duties, and open the door to building your personal savings. The typical home loan term has a pay off length of 30 years. But with simple changes to your home loan payments, you can pay down the mortgage faster.
Mortgage Period
You're not obligated to pay on a mortgage loan for 30 years. If you have the additional cash and can comfortably afford a larger monthly payment, discuss shorter terms with your broker or lender. For example, you can finance the home loan for 20 or 15 years. Aside from paying down the balance at a faster rate, you will decrease how much you owe in interest over the life of the home loan.
Extra Yearly Payment
Make one extra payment each year and you can reduce your home loan term by seven or eight years, according to the Mortgage Professor. Another option, set up a bi-weekly payment schedule and give your lender a payment every two weeks. This minute modification to the way you pay your mortgage results in one extra payment each year. Discuss bi-weekly payments with your lender and weigh the pros and cons. You cannot revert to once-monthly payments upon establishing a bi-weekly schedule.
Round Up
Get into the routine of rounding up your mortgage payments to save on interest and pay down the balance sooner. For example, if you're required to make a $1,428 payment each month, increase your mortgage payment to an even $1,500. Your lender applies the additional amount to your principal, which can take months off your original mortgage term.
Extra Cash
Put any extra cash to good use and apply this extra money to you principal and make several additional principal payments throughout the year. For example, if you routinely receive a sizable tax return or yearly bonus from your place of employment, use this extra income to pay down the mortgage instead of spending frivolously.
Considerations
If your income improves and you're able to afford larger home loan payments, discuss a refinancing with your mortgage lender and mention your plans to reduce the home loan term. Refinancing writes a new mortgage loan with brand new conditions and monthly payments. For example, if you've lived in the home for five years and there is 25 years left on the mortgage term, refinance to a 15-year mortgage to knock 10 years off your loan.
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