Posted on: 26th Mar, 2004 05:52 am
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.
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- 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.
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To pay down my mortgage - If I send my regular scheduled pmt of int. and principal in Aug. and include another check to pay the principal only for the next two months (Sept. and Oct.) (to pay down my the principal), then my next regular pmt iss to be paid Nov. Or will the check for principal only be applied to outstanding principal and monthly pmt due as scheduled on amortization schedule
Hi bonner,
If you have an agreement with the lender, then your check for principal will only be applied to outstanding principal and monthly payment will be due as scheduled on amortization schedule.
If you have an agreement with the lender, then your check for principal will only be applied to outstanding principal and monthly payment will be due as scheduled on amortization schedule.