How to Pay Down the Principal on a Mortgage. Paying down the principal on your home mortgage loan can save you thousands of dollars in interest over the life of the loan. It will also allow you to pay off your mortgage quicker than the originally agreed upon term. There are several different approaches to paying extra money on the principal.
Step 1
Send extra money with your mortgage payment every month. The amount does not need to be the same each month, it can be $10, $20, $50 or whatever you can afford that month. Put a note in with your payment to let the lender know you want the extra money applied to the principal and not toward next month's payment.
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Step 2
Participate in mortgage cycling. Mortgage cycling involves sending in a lump sum payment to be applied to the principal every 6 months. This method only works if you can come up with the cash to do this twice a year. By paying an extra $5,000 or more on the mortgage principal twice a year you can cut the length of the loan in half.
Step 3
Make a regular mortgage payment every 4 weeks instead of once a month. Since there are 52 weeks in the year this will allow you to make 13 payments a year instead of 12, and will pay your principal down quicker.
Step 4
Ask your lender if he offers Early Mortgage Payment Program (EMPP). To participate in EMPP you have to pay the mortgage 1 month in advance. After that you send the lender half of the mortgage payment every 2 weeks. The first payment each month goes toward principal and interest and the second payment goes directly on principal.
Step 5
Take any unexpected extra cash that comes your way, such as income tax refunds, and send it to your lender to be applied to the principal on your mortgage.
Tip
If you want to see how much money you can save in interest by paying down the principal on your mortgage, use an online mortgage calculator.
Warning
The majority of mortgage loans allow you to pay extra on the principal, but a few do not. Before making extra payments on the mortgage, read the terms of your loan or talk with your lender to be sure there is no penalty for early payment.
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