Principal Reduction Strategies: Tips for Paying Off Your Mortgage Faster
Mortgages are a necessary evil in today’s world. While it may seem like you’re stuck with your mortgage payments for the rest of your life, there are ways to pay off your mortgage faster and reduce the amount of interest you’ll have to pay over time. One way to do this is through principal reduction strategies.
In this post, we’ll go over some effective principal reduction strategies that can help you save money and pay off your mortgage sooner.
1. Make Bi-Weekly Payments
Making bi-weekly payments on your mortgage can be an easy way to reduce the amount of interest you owe over time. Instead of making one payment per month, split it up into two smaller payments every two weeks.
By doing this, you’re essentially making 13 full monthly payments each year instead of 12. This extra payment will go directly towards reducing the principal balance on your mortgage, which means less interest paid over time.
2. Round Up Your Monthly Payment
Another simple strategy for reducing your principal balance is by rounding up your monthly payment by just a few dollars. For example, if your monthly payment is $1,250, round it up to $1,300 or even $1,500 if possible.
This small increase in payment may not feel like much but can add up quickly over time and help accelerate paying down the principal balance on your loan.
3. Refinance Your Mortgage
Refinancing can be a great option if interest rates have dropped since you took out your original loan or if you’ve built equity in your home.
When refinancing a mortgage with lower interest rates or shorter terms than before (such as going from a 30-year fixed-rate loan to a 15-year fixed-rate loan), more money goes towards paying down the principal rather than just paying off the interest rate each month.
4. Make Extra Payments Towards The Principal Balance
Another effective principal reduction strategy is to make extra payments towards the principal balance on your loan. Even if you can only afford an extra $50 or $100 each month, that money will go directly towards reducing the principal balance and ultimately reduce the amount of interest you’ll have to pay over time.
5. Use Windfalls To Pay Down The Principal
If you receive a windfall (such as a bonus at work or inheritance), consider using some of that money to pay down your mortgage’s principal balance.
By doing so, you’re effectively making a larger payment than usual and reducing the amount of interest owed over time. This can be especially beneficial if applied early on in the life of your loan when most of your monthly payments are going towards paying off interest rather than decreasing the principal balance.
6. Consider A Lump Sum Payment
A lump sum payment is another way to reduce your mortgage’s principal quickly. If you’ve received a significant amount of money from selling an asset or investment, consider using it to make a large one-time payment on your mortgage.
This type of payment can significantly reduce how much interest accrues over time and help save thousands in total interest paid throughout the life of your loan.
7. Take Advantage Of Mortgage Assistance Programs
Lastly, it may be worth looking into government-sponsored mortgage assistance programs such as HARP (Home Affordable Refinance Program) or FHA streamline refinance programs which allow homeowners with limited equity in their homes access to low-interest refinancing options.
These programs often come with lower fees than traditional refinancing options and can help homeowners save thousands on monthly payments while also reducing overall debt levels through faster payoff periods.
Conclusion
In conclusion, there are several ways to reduce the principal balance on your mortgage quicker than just sticking with standard monthly payments alone. By implementing these strategies consistently, homeowners have seen significant reductions in their overall debt levels as well as savings from paying less interest over time.
Whether it’s through bi-weekly payments, rounding up your monthly payment, refinancing, making extra payments towards the principal balance, using windfalls or lump sum payments to pay down the principal balance, or taking advantage of mortgage assistance programs like HARP and FHA streamline refinancing options – there are many ways to achieve a faster payoff of your mortgage and save money in the long run.