How to Save Big Bucks on Your Mortgage

A home mortgage is the biggest ongoing debt most people will ever face. One of the easiest and most powerful money strategies you can employ is to pay off your mortgage early. It's a painless way to save thousands of dollars.

Instructions

Difficulty: Moderate

1. Look at the breakdown of your mortgage payment. Your monthly mortgage statement shows two elements: the principal payment, which is the portion of your debt that you're actually paying, and interest on the principal.
2. Pay off your mortgage early just by adding more to your monthly payment. Calculate whatever you can afford, and simply add that each month.
3. Make the equivalent of an extra payment each year. This requires simply adding an additional 1/12 of your payment to each mortgage check you write. Indicate on your mortgage payment slip that you're paying additional principal. For example, by paying an extra $50 a month on a 30-year, $100,000 mortgage at 6 percent interest, you slice six years off the life of the mortgage, and you save almost $25,000 in interest.
4. Sending in biweekly payments, rather than one monthly check, is another strategy for more quickly reducing your debt, if your lender allows it. Signing up for an official biweekly mortgage may not be worth the fee, however.
5. Renegotiate your mortgage rate by refinancing it if interest rates drop considerably. Typically it's not worth doing unless you can secure a rate at least 1 percent lower. See How to Refinance Your Home.
6. Consider variable interest or shorter term loans. A 30-year fixed interest loan is not your only choice. Many lenders offer variable loans, or loans that have a short-term "teaser rate" that keeps the interest low for a set period. If you're thinking of selling soon, there are also interest-only loans for different periods, as well as loans that are fixed for 5 or 10 years, then go variable.

What to Look For:

• Affordable extra payments
• Refinancing

Tips & Warnings

• If you've had your mortgage for a while and interest rates have dropped, consider refinancing. This will reduce your monthly payment and free up even more cash that can go directly toward the principal.
• Every extra dollar you add goes directly toward reducing the principal that you owe on your home.
• See How to Shop for a Mortgage and How to Refinance Your Home.
• Avoid paying the fee that some lenders charge to set up a biweekly mortgage (in which you pay a half-payment every two weeks). Adding one extra monthly amount every year does the same thing, and you can do that on your own.