Mortgage Reduction - Early Mortgage Payoff
I believe that it is safe to say that without being able to borrow money most of us would not be able to buy a car and certainly not a house. That is the good side of borrowing.
But there is a bad side also. And that is the interest that you pay on the loan. For a conventional 30 year mortgage the interest can equal twice the loan amount.
That means that a $100,000 loan that is carried for the full 30 years would cost about $200,000 in interest. Of course this depends on the interest rate and assuming no refinancing of the loan during the 30 year term.
The goal then is to be able to pay off the mortgage in as little time as possible so that there can be a large interest savings.
There are several mortgage reduction methods that can work. And all the methods that work require that you make extra payments to principal. There is no other way to do it. There is no magic bullet that will make the principal go away. Pay down the principal faster and the less interest you will pay.
The three most common methods are, bi-weekly mortgage, mortgage cycling and random principal payments.
The last of these methods is the least effective because it takes consistency to make a substantial dent in the principal of your loan. If you can be consistent then this may be a good method for you.
A bi-weekly mortgage can be set up by some lenders. It simply has you pay one half of your mortgage payment every two weeks. This means that you will make 26 payments which equals 13 full mortgage payments. One extra every year. This mortgage reduction method can reduce a 30 year mortgage by about eight years.
The last and newest method is called mortgage cycling. It also relies on making additional principal payments. Mortgage cycling requires the most consistency. One of the books featured at the top of this page goes into detail on how the cycling method works. It is well worth the read.
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