| Your house is your castle. It may be a large castle, or it | | | | If you were careful with your money and used some |
| may be a small castle. But when you experience the | | | | good old fashioned frugality principles do you think it |
| pride of owning your own home you experience what | | | | would be possible to find an extra $20 a week in your |
| the Lords and Kings of old experienced - they were | | | | budget? I think you could. (Remember frugality is |
| the landowners of their time. The rest of the population | | | | defined as "living cheap".) |
| paid rent and taxes for the privilege of working the | | | | If you then chose to permanently increase your |
| land. These days not many homeowners can afford | | | | mortgage payment by the same $20 per week you |
| to pay cash for their house, so they borrow money to | | | | would see a reduction in your mortgage, forcing you to |
| pay for their house. And this loan is usually referred to | | | | be mortgage free sooner. This increased payment has |
| as a mortgage. | | | | the effect of shortening the amortization schedule by |
| A mortgage is designed to be paid off over a long | | | | utilizing a regular increased payment. In this example |
| period of time, typically 25-30 years. Although I have | | | | you may see a 30 year mortgage reduce by 4-6 |
| heard stories recently of people electing to take their | | | | years, depending on the interest rate and how far |
| mortgage out over 40 years. In my experience as a | | | | though the term you are. |
| financial coach I have helped people who were on | | | | This is more achievable for many, especially |
| track to have their mortgage for 40-50 years. Imagine | | | | considering not all of us receive regular lump sum |
| that - taking out your mortgage when you are 30 | | | | surprises as described in Strategy One above. |
| years old and not being able to pay it off until you | | | | However, in my experience people are not motivated |
| were 80! Ouch. | | | | by a 4 year mortgage reduction and many families |
| Let me get to the point of this article, dealing with the | | | | therefore struggle to find an additional $20 per week... |
| principle of Amortization. | | | | even if it is achievable. This means they settle for |
| Amortization occurs when a loan is paid down over | | | | allowing the amortization schedule to beat them, rather |
| the term of the loan. The schedule the loan payment | | | | than the other way around! |
| follows means that you typically pay back more than | | | | Strategy Three: Utilize a home Equity Line of Credit to |
| three times the amount you borrowed as you pay the | | | | compound your interest savings. |
| interest to the lender, this is the cost of borrowing the | | | | This is a strategy that has a wide range of opinions - |
| money. | | | | people are polarized from loving it to hating it. Why is |
| When you follow the normal amortization schedule you | | | | that? Well, for those who use the principles to their |
| pay the maximum amount of interest and his is why | | | | maximum potential they see a significant gain in their |
| your loan takes the full term to be repaid. Here are | | | | mortgage reduction, often paying their house off in less |
| three Strategies you can use to pay down your loan | | | | than 10 years. But others do not learn the behaviors |
| faster and be mortgage free sooner. | | | | required to make this work, often living with lack of |
| Strategy One: Make extra deposits to reduce the | | | | financial discipline, and therefore end up in more debt |
| capital balance. | | | | than when they started. |
| Have you ever been in the position where you have | | | | The principle here is to allow your regular income to be |
| received a small bonus, a surprise check in the mail, or | | | | used to reduce the average daily balance of you loan |
| an inheritance from a relative? Usually these financial | | | | so that you pay less interest each month. This interest |
| surprises get lost up in the excitement of the moment | | | | saving compounds each month, meaning that you |
| and are spent before anyone thinks about it. This | | | | save more and more interest as every month passes, |
| takes away the potential financial gains that can be | | | | allowing you to pay more towards reducing the |
| made by applying the money to reducing the | | | | principal balance. |
| mortgage. By reducing the balance of the loan you are | | | | This is, in my professional opinion, the most effective |
| reducing the interest and shortening the amortization | | | | way to pay your mortgage down as fast as you can. |
| schedule. | | | | If you apply the disciplines required you can beat the |
| But let's face it, who is going to be excited and | | | | amortization schedule and be debt free sooner. |
| motivated to put their hard earned bonus from the | | | | In conclusion, it is my recommendation for you to apply |
| boss down on the mortgage, never to see it again? | | | | as many of these strategies as you can. If you can |
| That's why this is not a very popular method, and | | | | only manage one of them then please do it as soon |
| certainly not one many choose to use. | | | | as you can. But if you are able to apply all three |
| Strategy Two: Increase your regular payments to | | | | strategies, you will beat your amortization schedule |
| decrease the loan term. | | | | (even if you can't spell it! |