Mortgage Guide

Everything you need to know about mortgages, from the basics to advanced strategies for paying off your home faster.

Understanding Your Mortgage

A mortgage is a loan used to purchase a home, where the property serves as collateral. Understanding the key components of your mortgage helps you make better financial decisions.

Key Terms

  • Principal: The original amount borrowed
  • Interest: The cost of borrowing money, expressed as a percentage
  • Term: The length of time to repay the loan (typically 15 or 30 years)
  • Amortization: The process of paying off the loan over time through regular payments
  • Equity: The portion of your home that you own (home value minus remaining loan balance)

How Mortgage Payments Work

Each monthly payment is divided between principal and interest. In the early years, most of your payment goes toward interest. As you pay down the principal, more of each payment goes toward building equity.

Example Payment Breakdown

On a $300,000 loan at 6.5% for 30 years, your first payment of $1,896 might be split: $1,625 to interest and only $271 to principal. By year 15, the split might be $1,000 to interest and $896 to principal.

Building Equity

Equity is your ownership stake in your home. It grows in two ways:

  • Paying down your mortgage principal
  • Appreciation in your home's market value

Building equity is important because it represents real wealth that you can access through home equity loans, lines of credit, or when you sell your home.

Strategies to Pay Off Your Mortgage Faster

1. Make Extra Principal Payments

Even small extra payments can save thousands in interest and shave years off your loan. An extra $100/month on a $300,000 loan could save over $40,000 in interest.

2. Bi-Weekly Payments

Instead of 12 monthly payments, make 26 bi-weekly payments. This results in one extra payment per year, reducing your loan term significantly.

3. Refinance to a Shorter Term

If rates have dropped or your credit has improved, refinancing to a 15-year mortgage can save substantial interest, though monthly payments will be higher.

4. Round Up Payments

Round your payment up to the nearest $100. If your payment is $1,896, pay $2,000. The extra goes directly to principal.

When to Consider Refinancing

Refinancing might make sense when:

  • Interest rates have dropped at least 0.5-1% below your current rate
  • Your credit score has significantly improved
  • You want to switch from an adjustable to a fixed rate
  • You need to access equity for major expenses
  • You want to remove PMI by refinancing with 20%+ equity

Start Tracking Your Mortgage

Use Mortgage Meter to visualize your progress, simulate extra payments, and stay on track to pay off your mortgage faster.