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Methods of Cutting Years off a Mortgage Loan


Of all monthly expenses, the mortgage payment is the biggest. While some people have the ability to secure a 7 or 10-year loan, most lock into a 30-year mortgage. All of the methods mentioned below for cutting years off a mortgage loan are based on a $200,000 fixed rate mortgage at 6 percent interest, resulting in a monthly payment of $1,199.. While this interest is much higher than rates offered today, it shows just how significant savings can be.

Top Mortgage Cutting Methods

  • Additional Payment – One single payment a year toward the principal amount of the loan will cut a 30-year loan down to about 25 years or less. An individual can make one lump sum that totals a monthly payment or pay additional money each month that adds up to a full payment. Using the formula mentioned above, this equates to a savings of roughly $47,000.


  • Bi-Weekly Payments – Another method consists of making bi-weekly payments. By doing this, a homeowner actually pays 13 payments a year instead of 12. In this case, the extra money would go into a high interest savings account. In addition to making one additional annual mortgage payment there is earnings in the form of savings from the bank.


  • Mortgage Resetting – Also known as “recasting”, some lenders modify the amount of the monthly payment if a large payment is made toward the loan’s principal amount. While the monthly payment would not change, the life of the loan shortens. For example, if someone put $10,000 down toward the principal, the reset or recast monthly mortgage payment would drop by $60.


  • Eliminate the PMI – Private Mortgage Insurance (PMI) is mandated on all homes with less than 20 percent equity. Once the balance on the mortgage loan drops below 80 percent, PMI can be cancelled, which ultimately results in a monthly savings of about $130.


  • Assessment Reduction – Many homeowners are unaware that property taxes can cost thousands of dollars annually. If a home’s value decreased over the prior year and was not accounted for correctly in the assessment, the assessor can be petitioned to fight on the homeowner’s behalf. The amount of savings will vary but this leads to hundreds of dollars in savings annually.


  • Loan Modification – Another option involves a loan modification. There is certain criterion for qualification such as going through a financial hardship or being behind on mortgage payments. For someone who qualifies, there are various benefits possible to include a lower interest rate to just 2 percent, lower principal, or an extension of terms.

The Last Consideration

Refinancing a home loan is also a way to cut off years from a mortgage loan but typically only as a last resort. This consists of swapping an existing loan for a new one that has a lower interest rate. Not only does this save in interest payments, it often reduces the monthly payment. By lowering the interest rate just 1 percent, an individual would enjoy a monthly savings of $126.



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