Mortgage Reduction

Constant mortgage reduction is essential in eliminating the debt that you will incur from the purchase of a new home.

In order to reduce your mortgage, you not only have to pay accumulating interest, you also have to constantly make sure that you are chipping away at the balance of the loan, which is called the principle.

Mortgage reduction involves paying close attention to mortgage rates, choosing an appropriate payment plan, investing the largest down payment you can afford when you purchase your mortgage and choosing the shortest amortization period possible.

Mortgage rates frequently change so anyone who has purchased, or intends to purchase, a mortgage should pay close attention to them. The best mortgage rates usually occur when the economy slows down. Observing these rates you should be able to figure out whether you are better off with a fixed-rate or adjustable-rate mortgage.

If rates are low you might want to consider looking at a fixed-rate mortgage. By choosing this payment plan you will be assured a low rate, and therefore lower mortgage payments, for the duration of your loan. If rates are high you might be better off investing in an adjustable-rate mortgage. The initial rates are lower with this sort of payment plan and there is the option of being able to take advantage of falling rates in the future.

Pre-payment is also an effective way to begin the process of mortgage reduction. Prepayment allows you to take a considerable chunk out of the amount you owe your lender and therefore your overall mortgage is reduced. Usually pre-payments can be anywhere from 10%-20% of the total principle owed to your lender and these payment can typically be made on the anniversary date of your mortgage.

Mortgage amortization is the process of paying off a loan over a particular predetermined period of time and during mortgage amortization you will probably renew your loan several times with your lender. If you don’t alter the amortization period each time you renew your loan it can be hard to achieve significant mortgage reduction. If you don’t specifically ask for a short amortization period at the time you purchase your mortgage, lenders will usually start you off with a 25-year mortgage. For more efficient mortgage reduction be sure to shorten your amortization period each time you renew.

If you have tried all of these methods of mortgage reduction and your interest just seems to be accumulating you might want to think about refinancing or taking on a second mortgage.

Mortgage refinancing involves obtaining a new loan to pay off your mortgage. This option makes sense for homeowners whose mortgages are at least 2 percentage points higher than the current market rate and for homeowners who plan to live in the house they are financing for a long period of time.

Second mortgages are another option, though in the long run they often lead to increased debt for homeowners who can’t afford to pay for their initial mortgage. Usually homeowners who are able to get better terms on their initial mortgage by purchasing other smaller second mortgages exercise this option.

The more effort and money you put into mortgage reduction, the less time it will take you to pay off this sizable debt. So before you jump into a mortgage, try to plan out your payment options so you can eliminate your debt as soon as possible.