Paying Off Your Mortgage Faster
You have choices that can help you pay off your mortgage faster and save a lot of money in interest charges. It all starts with understanding how your payment is applied to the principal and interest you owe, and the options your mortgage lender can offer you.
Understanding principal versus interest
For each mortgage payment you make, the money is first used to pay the interest on your mortgage loan. The remaining portion of your payment is then used to reduce the principal, which is the amount that you borrowed from the lender.
In the first years of the mortgage, most of the payment normally goes toward the interest costs. As a result, the principal, or the amount that you owe, may decrease by only a small amount. As the mortgage balance decreases over time, more of each payment goes toward paying off the principal.
During a 25-year mortgage, depending on the interest rates charged on your mortgage, the total amount of your payments could be double the principal amount that you originally borrowed, or even more.
The key to saving money on your mortgage is to pay off the principal as fast as possible. If your household budget allows you to reduce the time you need to pay your mortgage in full, you could save thousands, or even tens of thousands of dollars in interest charges.