Your house is your castle.  It may be a large castle, or it may be a small castle.  When you experience the pride of owning your own home you experience what the Lords and Kings of old experienced – they were the landowners of their time.  The rest of the population paid rent and taxes for the privilege of working the land.  These days not many homeowners can afford to pay cash for their house, so they borrow money to pay for their house.  And this loan is usually referred to as a mortgage.

A mortgage is designed to be paid off over a long period of time, typically 25-30 years.  Although I have heard stories recently of people electing to take their mortgage out over 40 years.  In my experience as a financial coach I have helped people who were on track to have their mortgage for 40-50 years.  Imagine that – taking out your mortgage when you are 30 years old and not being able to pay it off until you were 80!  Ouch.

Let me get to the point of this article, dealing with the principle of Amortization.

Amortization occurs when a loan is paid down over the term of the loan.  The schedule the loan payment follows means that you typically pay back more than three times the amount you borrowed as you pay the interest to the lender, this is the cost of borrowing the money.

When you follow the normal amortization schedule you pay the maximum amount of interest and his is why your loan takes the full term to be repaid.  Here are three Strategies you can use to pay down your loan faster and be mortgage free sooner.

Strategy One:  Make extra deposits to reduce the capital balance.

Have you ever been in the position where you have received a small bonus, a surprise check in the mail, or an inheritance from a relative?  Usually these financial surprises get lost up in the excitement of the moment and are spent before anyone thinks about it.  This takes away the potential financial gains that can be made by applying the money to reducing the mortgage.  By reducing the balance of the loan you are reducing the interest and shortening the amortization schedule.

But let’s face it, who is going to be excited and motivated to put their hard earned bonus from the boss down on the mortgage, never to see it again?  That’s why this is not a very popular method, and certainly not one many choose to use.

Strategy Two:  Increase your regular payments to decrease the loan term.

If you were careful with your money and used some good old fashioned frugality principles do you think it would be possible to find an extra $20 a week in your budget?  I think you could.  (Remember frugality is defined as “living cheap”.)

If you then chose to permanently increase your mortgage payment by the same $20 per week you would see a reduction in your mortgage, forcing you to be mortgage free sooner.  This increased payment has the effect of shortening the amortization schedule by utilizing a regular increased payment.  In this example you may see a 30 year mortgage reduce by 4-6 years, depending on the interest rate and how far though the term you are.

This is more achievable for many, especially considering not all of us receive regular lump sum surprises as described in Strategy One above.  However, in my experience people are not motivated by a 4 year mortgage reduction and many families therefore struggle to find an additional $20 per week… even if it is achievable.  This means they settle for allowing the amortization schedule to beat them, rather than the other way around!

Strategy Three:  Utilize a home Equity Line of Credit to compound your interest savings.

This is a strategy that has a wide range of opinions – people are polarized from loving it to hating it.  Why is that?  Well, for those who use the principles to their maximum potential they see a significant gain in their mortgage reduction, often paying their house off in less than 10 years.  But others do not learn the behaviors required to make this work, often live with lack of financial discipline, and therefore end up in more debt than when they started.

The principle here is to allow your regular income to be used to reduce the average daily balance of you loan so that you pay less interest each month.  This interest saving compounds each month, meaning that you save more and more interest as every month passes, allowing you to pay more towards reducing the principal balance.

This is, in my professional opinion, the most effective way to pay your mortgage down as fast as you can.  If you apply the disciplines required you can beat the amortization schedule and be debt free sooner.

In conclusion, it is my recommendation for you to apply as many of these strategies as you can.  If you can only manage one of them then please do it as soon as you can.  But if you are able to apply all three strategies, you will beat your amortization schedule (even if you can’t spell it!)

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Do not fall trap to the standard mortgage amortization – you can beat it by applying some simple strategies and disciplined that the financially intelligent use.

Gain wealth by reducing your debt.  Learn how to pay off your mortgage faster.

Learn why many families are on track to have a 40-50 year mortgage, and make sure this isn’t you.

View a free video at:

http://www.howtosmashyourmortgage.com

Phil Strong is an international author and speaker on the subject of personal finance.  He teaches people how to achieve more with the money they have today, while building income streams to grow future wealth.

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