How To Cut Down the Term of Your Loan


Mortgage payments are one of the recurring monthly financial obligations that eat up a chunk of your savings. While purchasing a new home is a dream come true to many first-time property owners, it is also critical to give critical thought to the ensuing payment schedule if you’re looking for alternative ways to reduce your loan term, read more to learn some practical tips.

Make an Additional Payment Every Year

Any time of the year is a great time to repay your mortgage loan. To reduce your repayment term, you can make an extra payment to the bank, separate from the agreed payment schedule. In the current financial times, making that additional payment reduces your mortgage term by four years.

If you multiply the four years with the number of principal payments you do every month and the interest rate, you’ll notice how much great of a bargain it is to make that extra yearly payment.


The answer to the question of whether to refinance or not greatly depends on the age of the loan and the difference between the current rates and the maximum possible rates.

Mortgage loans amortize. That means that interest rates tend to be steeper at the beginning of the term while the principal payments come toward the end of the term. Therefore, once you’re done clearing your student loan or gotten a salary increase at work, use the time and money to refinance your mortgage and shorten the term. The interest rates you pay throughout the loan period accrue to a significant amount (higher than the loan). Therefore, refinancing is better during the beginning of a loan term.

Round Off Your Monthly Mortgage Payments

With a loan, you’ll have to make monthly payments. When the time for payment comes, try to round off the amount to the nearest hundred. That said if you’re supposed to pay $1,550, pay your lender $1,600.

Once the lender receives the payment, they will deduct the additional amount from your principal balance, thus reducing the period of the mortgage payment. Not only does that contract the timeframe, but also saves you considerable cash.

Rounding off the amount won’t shorten your loan term by four years as with extra annual payments, but it reduces the loan term by about two years depending on the remaining time and the amount borrowed.

Do Away with Your Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) means an additional payment to your mortgage which stretches the term of payment. Most homeowners pay PMI because of a small amount of principal, usually less than 20%.

Nonetheless, there is a bright side to this because you need not pay PMI for an extended period. To do this, make enough payments, so you earn 20% equity of the property. You can gain equity quicker if the value of your property spikes. Once you’ve met your equity stake, call your lender and inquire on whether you can drop your PMI. Many mortgage lenders usually send an appraiser to calculate the value of the home before verifying your equity stake.

Request Amendments in Your Loan Terms

If you can barely meet your monthly payments and are afraid of falling short on your monthly dues, you can contact your lender and request them to review the terms of your loan. Your positive loan status can render you eligible for a loan modification.

Loan modification involves changing the terms on your loan without having to refinance. Most lenders may consider such a plea as many of them assist homeowners who require financial help.

Owning a new home is a remarkable milestone for anyone. After a purchase, homeowners need to find effective ways of reducing their mortgage payment term. Using the above guide, you’ll be in a good position to clear your mortgage under a short period without much financial hassle.

Get a personalized loan consult with one of our experts today.