How to Shorten the Life of a Mortgage Loan Through Amortizing

Shortening the life of a mortgage loan through amortizing is a relatively simple process for those who have the ability and fiscal discipline to carry it out. The benefits to shortening a loan are numerous. Not only is it possible for you to save thousands of dollars in interest payments and retire that monthly mortgage obligation early, you can also choose the times you make the extra payments. If money becomes tight for a while, you are under no obligation. Benefits of a early loan payoff strategy include more freedom, less stress, better liquidity and security.

Instructions

1

Look at your mortgage loan amortization schedule, which your lender should have provided you. If not, you can make your own using a computer program or simply look up the estimated date to maturity. This is important to determine how much you wish to shorten your loan.

2

Enter information into a loan calculator that reflects your current loan conditions. This should include your outstanding balance, number of months left on the loan and current interest rate. The result should be close to the same as your current payment.

3

Plug in a new payment number. Some calculators may simply have you add this information all on the same line and others may have a line for an additional payment on the principal. The amount you wish to pay is up to you.

4

Experiment using different years in the loan length field. For example, if you have a 30-year mortgage, type in 25 years to see the new terms. A 30-year, $100,000 home mortgage at 6.25 percent interest will have a payment of $615.72 for principal and interest. However, if you want to shorten that loan by five years and save more than $20,000 in interest, you can add $50 per month to the payment.

5

Check with your lender to make sure there are no penalties or fees associated with early payoffs. Fees are especially common if you want to make more than one payment each month. Begin paying the amount you're comfortable with. If, during some months, you wish to pay more, you can do so. If the average over the years is your targeted amount, you should come very close to meeting your target payoff date.

6

Inform your lender on each payment that the additional money is to be applied to the principal. Most lenders will assume that is what it's for, but it never hurts to make sure and also to keep a record of it.