Benefits of a Refinance

• Home loan refinances benefit owners who want a better rate on the mortgage and lower payments. If you plan to get rid of a mortgage loan in less than 30 years by paying down the principal sooner, a mortgage refinance can help you secure a reduced mortgage term. Term reductions will increase the monthly payment on the property, but you will spend less in interest payments on the mortgage and reduce the principal quicker. For example, a 30-year $100,000 mortgage loan with a 5 percent interest rate will have a monthly payment of $536; total interest you'll pay is $93,256. The same mortgage loan and interest rate with a 15-year term will have a monthly payment of $790 (minus insurance and taxes); total interest you'll pay is $42,343, a savings over the 30-year term of $50,913.
  
  

Bi-Weekly Option

• Most people don't want to think about their mortgage multiple times in one month. However, bi-weekly mortgages, which involve making a mortgage payment every two weeks, can help you save in interest and reduce the home loan principal quicker. This method works by forwarding one half payments to your home loan provider every two weeks. Because there are 52 weeks in a year, paying bi-weekly results in 26 payments a year, the equivalent of 13 monthly payments (one extra payment a year). Using the previous example of a $100,000 mortgage at 5 percent interest for 30 years, by paying bi-weekly, your interest comes to $75,488.85 over the term of the loan, a savings of $17,766.93 over just making the standard monthly payment. According to the Mortgage Professor, bi-weekly payments can take approximately seven years off your home loan. Lenders have to approve and set up a bi-weekly schedule, and some lenders charge a setup fee.
  
  

Use Extra Money Wisely

• Using your disposable income to pay down the mortgage principal also helps get rid of a home loan quicker. Let's say you have an extra $300 a month; make an additional principal payment in this amount each month and you will have paid an additional $3,600 towards your principal each year. This is the equivalent of one or two extra payments a year. This seemingly insignificant maneuver saves money on interest and can take years off a mortgage.
  
  

Drop a Lump Sum on Your Mortgage

• Not everyone has the circumstances to increase their home loan payment by several hundreds of dollars each month to reduce the principal. However, if you get a tax return each year or receive bonuses from an employer, put this money to good use and make a large payment towards your principal on the mortgage loan. Make this a yearly habit and you can significantly decease your mortgage principal before your scheduled pay off date.