How to Pay off your Mortgage in 2 Years

Instructions

• 1

  Understand the concept:
  
  Your mortgage payment comprise of two elements; one is the interest payment and the other is the principal amount. The principal amount is the actual amount that you borrowed. Unfortunately, over the years the interest payments roughly equal the principal amount you borrowed. So you eventually end up paying almost double of what you borrowed.
  
  The first few years of your payments go towards filling up the interest charges and very few principal is reduced. Remember the crux: it is the principal you have to reduce and pay off. The later years contribute more to the principal and less to the interest.
• 2

  Refinance your mortgage to 2 years:
  
  Most mortgage plans have an amortization period of 25 years. Refinance with the current lender or any other lender for a loan amortization period of 2 years. This will naturally increase your monthly payments depending on the principal you borrowed. However, the good thing is it will drastically reduce the interest element in the payment. So you pay less for a mortgage in two years than you would have paid for one in twenty five years.
• 3

  Accelerated payment options:
  
  Accelerated weekly and accelerated biweekly payments are options available with most lenders. They allow you to make extra payments an year. For example, in monthly payment mode you pay 12 times an year. While in weekly and biweekly payment you make an extra payment each year i.e 13 which greatly reduces your overall mortgage payment period.
  
  An example for an accelerated weekly payment plan and how it saves both interest charges and mortgage duration is given below:
  
  Normal monthly payment:
  Principal: 15000
  Period: 25 years
  Monthly payment: 1000
  Total payment per year: 12000
  
  Accelerated weekly plan:
  Principal: 150,000
  Weekly payment: 250 (1000/4)
  Total payment per year: 250 * 52= 13,000
  Total interest charges saved: 29,751
  Total period saved: 4 years sooner i.e 21 years
• 4

  Lump sum payments and prepayments:
  
  Making a lump sum payment greatly reduces your mortgage period. Pre-payment of your mortgage saves you great interest charges because the amount you pre-pay is usually the principal. This directly leads to a cut in your outstanding balance and the mortgage period. However, you have to confirm from your lender whether they have a certain penalty on prepayment or a limit on the amount. Another confirmation that you need is that any prepayment goes to the principal. We have an example for you as to how much prepayment reduces mortgage period.
  
  Without prepayment:
  Principal: 150,000
  Period: 25 years
  Interest:123,368
  Total: 273,368
  
  With prepayment:
  Prepayment: 15000
  Principal: 150,000
  Interest: 90,168
  Total: 240,168
  Period:20.7 years
  Saving: 33,200
  
  So to pay off your mortgage in two years, you will have to make greater prepayments in lump sum  so that the total period reduces.
• 5

  Getting  the extra money:
  
  Much that we plan for lump sum payment, increased payments and prepayments, the main problem is getting the extra amount. This calls for drastic steps. the best thing is it is all going to be over in two years.
  
  How to make more money:
  
  Start with a garage sale of things you do not need around the house. Sell of assets that you can do without. Rent out a room to lodgers and use the money to make extra payments. Working overtime and getting more jobs is also an option.
  
  How to save:
  
  Cut on the frills for the two years. It is about living with the basic needs and cutting on the wants. This may look daunting but if you achieve to do it, you are going to thank yourself for the rest of your life.