Mortgage Cycling Secrets Revealed

Understanding Mortgage Cycling: A Practical Approach

You might have encountered ads promoting "mortgage cycling" as a revolutionary technique for paying off your mortgage early. While the concept is often presented as a novel strategy, it fundamentally relies on paying extra principal to reduce the life of your loan and save on interest. Here's a clearer picture of what mortgage cycling entails and how you can effectively use it to your advantage.

What is Mortgage Cycling?

Mortgage cycling, in essence, is the practice of making extra payments towards your mortgage principal to pay off the loan sooner. This method isn't new; it’s a straightforward application of the principle that paying down principal faster will reduce the total interest paid and shorten the loan term.

How Mortgage Cycling Works

1. Basic Principle: By making additional lump-sum payments or increasing your regular payments, you can significantly reduce the duration of your mortgage. For example, if you regularly pay more than the minimum required, you'll pay off your mortgage earlier and save on interest.

2. Example Calculation: Consider a $160,000 30-year mortgage with a 7% annual interest rate. Your standard monthly payment would be $1,064.40, with $932.57 going towards interest and $131.83 towards principal. By adding an extra $131.83 to your monthly payment, you effectively reduce your mortgage term by one month. If you continue this practice, you could halve the term of your mortgage, saving thousands in interest.

Funding Your Mortgage Cycling

Finding Extra Money:

• Annual Tax Refunds: Use your tax refund to make a lump-sum payment towards your mortgage.

• Insurance Settlements: Allocate any unexpected insurance settlements to your mortgage.

• Cash Gifts or Prizes: Apply any cash gifts or prize money directly to your mortgage principal.

Budget Considerations:

• Prioritize: Evaluate where you can cut back on discretionary spending, like unnecessary credit card purchases, to find funds for your mortgage.

• Savings vs. Mortgage: Be cautious about using savings or investments to pay down your mortgage. Consider whether higher interest debt or investment returns might offer a better financial strategy.

Alternative Strategies

1. Extra Monthly Payments: Set aside extra money each month and apply it to your mortgage. Even a small additional amount can have a significant impact over time.

2. Debt Prioritization: Before putting extra money towards your mortgage, consider paying off high-interest debts. This can improve your overall financial situation.

3. Evaluate Investment Returns: Compare the potential returns from investments with the interest rate on your mortgage to ensure you're making the most beneficial financial decision.

Conclusion

Mortgage cycling is essentially a disciplined approach to paying extra towards your mortgage to reduce the loan term and save on interest. While the concept itself is straightforward, its successful implementation requires consistent effort and strategic financial planning. By setting aside extra funds, using windfalls wisely, and prioritizing high-interest debts, you can make significant progress towards paying off your mortgage early.

Keep it simple: allocate any extra money towards your mortgage and avoid getting bogged down by complex schemes. With a few practical steps, you can effectively manage your mortgage and achieve financial freedom sooner.