Paying down your Mortgage principal - Making even one extra mortgage payment per year can reduce your repayment period from 30 years to 22. Paying on principal also allows your regular payment to then count towards more principal and less interest as your balance has decreased.
There is a popular program called the bi weekly program. Instead of making a full payment 12 times a year, the homeowner makes 1/2 the payment every 2 weeks -thus 26 times a year. Therefore it equals 13 full payment a year and will reduce the time of repayment.Unlike purchasing a car, a home tends to increase in value over time. By paying more towards your principle, you are putting money away that you can use later when you sell or refinance your home.
Paying down prinicple means you are paying down the loan balance. In a fully amortized loan, you are paying a combination of principle and interest. Paying down more principle each month above and beyond your normal monthly payment could shorten the life of the loan and reduce the overall amount of interest paid on the loan.
Most mortgage agreements allow the borrower to make extra payments of up to 20% of the loan balance in a given year without inflicting a pre-payment penalty. In any case, pre-payment penalties only apply in the first few years of the loan term. One should consult with the mortgage broker or examine the mortgage agreement before making extra payments to pay down the principal.
Think about refinancing your home to a lower interest rate but still making the current payment. You can not only pay a lower interest rate, but you could pay off your mortgage much sooner without paying any more than you are currently paying.
Principal is defined as the amount of debt on a mortgage not including the interest. You may also hear it referred to as the face value of a note mortgage or other debt instrument.
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