How Can I Repay My Principal Faster?
You typically pay your principal off fairly slowly, since you have to take care of a sizable chunk of interest before your payments start making a dent in your loan balance. But what if you want to repay your principal faster? Repaying your loan more quickly can help you build equity and shorten your loan term, allowing you to build wealth and save on interest paid throughout the life of the loan.
So, how can you do it? Let’s talk about a few ways you can work toward paying off your mortgage early.
Biweekly Payments
No matter the size of your loan, your monthly mortgage payment is likely a little overwhelming. Principal, interest, taxes and insurance all at once can make for a hefty bill to pay every single month. One solution to make this payment more manageable (as well as help you pay more, faster) is to make biweekly mortgage payments rather than monthly ones.
If you typically pay $1,500 per month, switching to a biweekly schedule would mean that you would pay $750 every 2 weeks instead. Splitting up the payments can help make your budget more manageable, week by week – and switching to a biweekly schedule also means you’ll end up paying a little more than you would if you were just making monthly payments.
In a year, you’d generally make 12 payments on a monthly schedule. If you add up all the half payments you’d be making on a biweekly schedule, you’ll find that you actually end up making what equates to 13 full payments instead of 12 – which may not seem like much extra, but can actually take years off the life of your loan.
Mortgage Recast
When you make a large down payment at closing, you reduce the amount you’ll end up paying monthly throughout the life of your loan.. What if you could do the same thing later on in your loan term?
You can do just that by doing a mortgage recast – also called mortgage reamortization. A mortgage recast allows you to pay a lump sum toward your loan’s principal balance, which decreases the cost of your monthly payments going forward.
Not everyone will be able to do this – FHA, VA, USDA and most jumbo loans are ineligible for mortgage recasting. Lenders will also have their own specific requirements about how much you can contribute and when.
If this is an option for you, however, and you have some money saved to put toward the loan, it can help you reduce the amount you still need to pay on your balance significantly.
Make Extra Payments
The one extra payment made when you pay biweekly rather than monthly can help you pay off your mortgage must …….
