Due to availability of several efficient mortgage programs today, buying your own home has become quite easy. However, financing your home means combining your savings with the money you borrowed through a financial arrangement, this is known as mortgage.

You are required to pay back the money you borrowed plus the interest amount in the form of monthly installments. The tax on your home is also included in this amount.  Mortgages can be amortized for different time duration; you are allowed to pay back the amount within that time frame.

Pre-Payment Options

Different lending companies offer several pre-payments plans today. Although there is a limit to how often you can use an option, therefore, it is important for you to check and compare services of different lenders and choose the one which is best suitable to you.

Many lenders now allow you to pay a lump sum amount on your mortgage on annual basis, the amount that will definitely reduce your principal. For example a payment of $2000 a year on $80,000 mortgage will definitely cut years off your mortgage.

Another payment option which lenders are now offering includes doubling up your mortgage installment. Some lenders require you to pay double payment at the end of every month or several times throughout the year. Another option that borrowers can avail is to pay biweekly payments instead of monthly payments this will also affect significantly on the life of your mortgage plan.

Although pre-payment plan can save you thousands of dollars in interest cost of your mortgage hence reducing your principal amount but you are not reducing your existing payment obligations. You have to make your monthly payments regularly.

There are some people who do not support mortgage pre-payment options and think that this additional money can be invested in something better. If you have low interest rate on your mortgage and yet you are paying $2000 extra it’ll definitely reduce your principal but it will give you no tax benefit.  On the other hand, if you’ll put the same amount in retirement plan it’ll give you tax break and if you invest this amount in mutual fund at 10% , you’ll still get 3% profit on your investment.

Low Amortization Period

The average amortization period on your mortgage is 15 years. If you are selecting a shorter amortization period it means that you’ll pay high monthly installments. The shorter the period, the higher the payment, but more you’ll save on interest and the long-term cost of the loan. If is wise to choose a mortgage with short amortization only when it offer low interest rate and you can afford huge monthly payments.


Refinancing your mortgage is a good plan only when you have fixed, long-term mortgage and rates have fallen two percent. But it should be kept in mind that refinancing rates are higher even if you considering a new mortgage plan. If you have closed mortgage discharge, you’ll have to pay three month interest penalty, which can cost considerably more.

Your penalty will be based on your outstanding principal amount; you can reduce this amount by utilizing a prepayment privilege and reducing the principal. This can be done by utilizing your savings or arranging money with another lender who can borrow you enough so you can discharge your mortgage and pay the penalty. Before making any decision it is better to consult the specialist to seek better guidance.

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