The demise of the mortgage industry is the news of the year. Exotic loans, predatory lending practices, high-flying investors buying risky mortgage securities, and the plight of homeowners faced with mounting monthly payments are just a few of the topics making headlines everywhere. But little attention is given to teaching consumers how to pay off their mortgages completely, in a shorter amount of time, so that they are no longer tied to borrowed money and can own their homes free and clear.



Buying your own home is a practical realization of the American Dream. We who live in the USA pride ourselves on the value of freedom in our everyday lives, and paying off your mortgage is one of the most liberating goals a homeowner can accomplish. The way to shrink your mortgage is to pay off the principal at an aggressive pace. More and more consumers are making it happen by following disciplined, strategic formulas.

The basic premise of any plan to reduce your debt revolves around three steps:

1)Use your monthly statement to find out the breakdown of your mortgage payment. There are two main components. The principal payment shows the portion that you pay each month of your actual original debt. The interest payment represents the fee you pay for borrowing the principal.

2)In the beginning of your loan, monthly payments may be entirely dedicated to interest. As the loan matures, you will gradually pay larger chunks of the principal. Paying off the principal is the key to erasing your debt, and you can voluntarily increase your principal payments to speed up the process.

3)Decide what you can afford. Simply add that to your regular payments and designate it for payment of principal so that your mortgage company will credit your account appropriately. You want to ensure that they don’t use it to pay interest, because applying it to principal instead is more effective and should be your main goal.

To accelerate the process of “paying down" your mortgage, apply one or more of the following ideas that help you chip away at the principal at a faster rate:

Make an extra payment every year:

Make the equivalent of an extra payment each year. One way to do this rather painlessly is to divide your normal payment into twelve parts. Next, add one-twelfth to each payment you make during the year. For example, if your monthly payment is $1,200, divide it by 12 to get $100. Pay an extra $100 each month. After 12 months you will have effectively paid an entire extra monthly payment.

By paying an extra $100 a month on a 30-year, $200,000 mortgage at 6 percent interest, you will shorten the life of the mortgage by about 5 or 6 years, saving around $25,000 in interest payments.

Refinance into a shorter mortgage:

If you find a 15 or 20-year conventional fixed rate loan that offers lower interest than your 30-year loan, you may save money by refinancing into the shorter mortgage. You’ll pay off your loan much sooner, too. But your monthly payments will increase due to the shorter amortization period.

Pay biweekly instead of monthly:

Sending a payment every two weeks is another tried and true strategy for reducing the balance on your mortgage. You don’t double your payments but instead divide your normal payment into two increments, so the amount you pay each month remains essentially the same as normal. But by paying half of your payment every two weeks, you wind up paying a full extra month’s worth of mortgage payments each year. The result is a function of mathematics and how our 52-week, 12-month calendar operates.

Many people pay a fee to have their lender set up an official biweekly payment program. This can legally obligate you to stick to the program, but it can also cost so much in service fees that the whole idea defeats itself. If you don’t have the discipline to pay biweekly, paying your mortgage company to set up a plan may be justified, but in most cases it is a waste of money because you can put the plan in motion for free all by yourself.

Invest gifts, year-end bonuses, and tax refunds:

One way to shave your debt is to simply increase your payments of principal whenever you can afford it. Put your extra income directly to work paying for your home, and it may turn out to be one of your wisest investments.

If you, too, yearn to “get off the grid" by no longer having to make a monthly mortgage payment, it is certainly possible. With a little bit of planning and some motivated determination, you may soon be debt-free. Then you can join the ranks of those happy homeowners who sit atop a mountain of equity and never lose any sleep over a pile of outstanding debt.

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