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Jul 23, 2008

Accelerate A Mortgage Pay Off

            A Mortgage is usually the largest debt anyone will ever take on in their life. The average homeowner will pay over double the price of the home when their mortgage is paid off. These strategies are listed from beginner to advanced respectively 1-4.

           Make additional principal contributions when you can - This is the easiest way to reduce the amount of interest you will pay on the life of your mortgage. Most are not successful at this concept because of discipline. Take caution not to send in any money you will need back because with a traditional mortgage the only way to get additional principal payments back is to refinance.

  Start a bi-weekly mortgage payment program - A bi-weekly mortgage payment program has you pay 1/2 of your mortgage payment every 2 weeks. This will roughly cut 7 years off of a standard principal and interest 30 year mortgage. A homeowner can accomplish this on their own by using a mortgage calculator or if a homeowner lacks discipline they can subscribe to services which can automatically withdraw the funds every two weeks.

         Refinance to a lower interest rate mortgage - To save interest you can refinance to a lower interest rate mortgage. Be aware, even if you are lowering your interest rate you should continue to make the same payment as your existing mortgage to stay on an accurate payoff time. If you reduce your payment to the new payment of the new mortgage you could end up paying more in interest over the new 30, 40 or 50 year term.

             Mortgage Cycle - Mortgage cycling is a concept made popular over the last decade in Australia and the UK. Mortgage cycling uses your existing first mortgage combined with a equity line of credit(LOC) second mortgage. The LOC will function as your primary checking account allowing you to deposit all of your income in the line of credit and pay all of your bills out of the line of credit. By making use of this idle money which would normally sit in a low interest bearing checking account a homeowner can save substantial amounts of interest. It is recommended to use a professional coaching service which guarantees its results.

If the mortgage interest paid each year is reducing your tax obligation, then you may benefit more from investing your extra dollars in a vehicle that compounds interest to you until your compounded interest investment's value reaches the balance due on your mortgage.

Always see a certified professional to review your situation and objectives.  They are worth the expense.

Reducing your principal balance ahead of schedule may increase your taxable income by reducing your deductions.

            Paying down simple interest debt early rather than investing those same discretionary dollars in compounded interest investments, may not be the shortest route to your goal.

Increasing the equity in your home by early principal reduction is certainly in the best interest of the lien holder (the bank), but may not be in the best interest of the home owner, since his "savings" or equity is locked up and not accessible to the homeowner, but does improve the bank's position by reducing his reserved requirements.