How to Pay Down a Mortgage or Save for a Dream Home

The sooner you start saving, the sooner you can enjoy your dream home.

The sooner you start saving, the sooner you can enjoy your dream home.

A house is the biggest single purchase you'll probably ever make, and paying it off takes years, even decades. It's possible to pay it off early or to save up a large-enough down payment so you can buy your dream home with a smaller mortgage, but it doesn't happen without careful planning and budgeting.

Pay More

The simplest way to shrink your mortgage is to pay more each month. If you can afford $500 or even $50, it will eat away at your mortgage principal over time. Another approach is to pay half your monthly payment every two weeks; because months aren't exactly four weeks long, this equals an extra month's payment every year. If you acquire a lump sum from a bonus or an inheritance, put that toward the mortgage as well. Write on your checks that the extra payments go toward principal, not interest.


If mortgage rates have dropped since you bought your house, consider refinancing your mortgage loan. By taking out a new mortgage at current rates you pay off your old loan, get lower monthly payments and can use the money you save each month to pay down the mortgage faster. Check first whether you have to give your lender a prepayment penalty if you refinance. Another possible problem is that if your house is worth less than the amount you owe on the current mortgage, lenders won't refinance.

Save Your Money

One way to save for your dream home is to start making mortgage payments to yourself immediately. Use an online mortgage calculator to figure out your potential payments and start putting the PITI -- the monthly share of principal, interest, taxes and insurance -- into a money-market account. This not only gives you more for a down payment, it gets you used to the budgeting you have to do as a homeowner.

Write It Down

Whether you want to put more toward buying your dream home or paying down the mortgage, tracking and writing down your spending will help. It's easy to lose track of how many unnecessary purchases you make, particularly if you make lots of ATM withdrawals rather than relying on credit cards. Once you know where your money goes, it'll be easier to decide what spending to cut. Make the cuts, then devote the savings to your housing budget.


About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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