Reducing Mortgage Debt

Dated: 11/20/2019

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Mortgage debt easily becomes an automatic monthly payment that we ignore as other financial needs and goals rise to the surface. However, as we ignore our mortgage debt, interest continues to accrue, costing us more and more over time. Paying attention to your mortgage debt can save you thousands of dollars, dollars you can invest elsewhere. These tips can help you reduce your total mortgage debt.

Refinance

Keep an eye on interest rates and consider refinancing when rates are low. Securing a lower interest rate means more of your monthly mortgage payment is applied to your mortgage principal rather than interest. 

Be sure to evaluate the cost of refinancing against the interest savings to ensure that refinancing is in your best interest. 

Don’t get tempted to increase your repayment term. A shorter loan period means higher monthly payments, but it saves you thousands on interest overall, reducing the total amount you pay for your mortgage over time.  

Remove Your PMI

If your down payment was less than 20% of the purchase price of your home, you are most likely paying Private Mortgage Insurance (PMI) as part of your monthly mortgage payments. 

As you make payments toward your mortgage principal, you secure more equity in your home. Once you have 20% equity in your home, you can talk to your mortgage broker about removing your PMI. This typically involves getting an appraisal. 

With the PMI cost off your plate, more of your monthly payment applies to your mortgage principal, reducing your mortgage debt more quickly. 

Round Up

Instead of paying the exact amount of your mortgage payment, round up. The goal is for the additional amount to go toward your principal, reducing your total mortgage debt more quickly. 

IMPORTANT: first find out how your mortgage company handles prepayments. Some have rules about when extra payments can be accepted. Some charge a fee for prepayment. Some automatically apply extra payments to the next month’s payment rather than to your principal balance. 

Talk to your mortgage company to discover how extra payments are applied before you start rounding up.

Pay Bi-Weekly

Pay bi-weekly instead of monthly. Split your monthly payment into two, and pay every other week. 

One payment a month equates to 12 payments a year. 

Bi-weekly (once every two weeks) equates to 26 payments a year. 

For example, let’s say your mortgage payments are $6,000 a month, you’ve paid $72,000 by the end of the year. If you split that in half and pay $3,000 every other week, you’ve paid $78,000 by the end of the year, reducing your mortgage principal by an extra $6,000.

Again, be sure to check for prepayment penalties and biweekly payment options before setting this in motion.


Keep in mind that paying off higher interest loans, which typically include credit cards, cars, and student loans, should be prioritized over reducing mortgage debt. In addition, your home should not be your only investment. Round out any mortgage savings plans with investments in savings for retirement, college, and, of course, a rainy day. 


Questions? Contact any LW Reedy agent. We are always happy to talk to you about mortgages and any of your real estate questions.

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