Mortgage Paydown Options
Because of the amount of interest that accrues on a home loan, many homeowners look to defray interest costs by paying down their mortgage ahead of schedule. Although the feasibility and wisdom of this decision depends on a big-picture analysis of your financial situation, if you determine it's a strategy for you, there are several ways to go about it.
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Increase Your Payments
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If your loan is structured so you can pay more than the required amount each month, the easiest way to pay down your mortgage is to simply write your monthly check for more each month. Because mortgage payoff schedules are calculated so consumers pay off the bulk of the interest before paying down the principal, surplus payment amounts apply directly to the principal, not the interest each month, which refigures overall interest assessments while helping you gain equity in your home.
Biweekly Payments
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If you make monthly mortgage payments, you’ll make 12 payments over the course of a year. Shift your payment schedule so you write checks biweekly paying half the monthly amount, and you’ll make 26 payments over the course of a 52-week year—the equivalent of making 13 monthly payments over the same period. That extra monthly payment applies directly to your principal, once again reducing interest and increasing your equity.
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Lump Sum Payments
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Some mortgages are structured to allow you to make lump-sum payments at various times through the year. These payments are made in addition to your normal payment schedule and are applied 100 percent to the remaining principal on the loan.
Refinance and Keep Paying On Old Rates
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If interest rates and mortgage terms are in your favor, you may have the opportunity to refinance your loan on more favorable terms. While this option reduces your overall interest total, thus reducing your monthly payments, if you continue to pay the same amount each month you did on your more expensive mortgage, you’ll remain in budget while applying more money to the principal each month.
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