Mortgage cycling is a strategy for building equity in your home and quickly paying down the balance of your mortgage loan. Cycling your mortgage is an effective strategy when executed properly; here are the basics you need to understand before attempting a mortgage cycling strategy to build equity in your home.

Mortgage cycling is a repayment strategy that can shave ten years off the repayment of your mortgage loan. This is an effective strategy for any homeowner with a couple hundred dollars of disposable income every month. Many people don’t have this amount of cash on hand every month; if you don’t have the money there is still a way to implement this strategy using equity in your home.

Mortgage cycling works by making large equity payments against the principle loan balance of your mortgage, several times every year. Many homeowners make $5,000 equity payments every six months. If you don’t have the cash on hand you can utilize a home equity line of credit to make the equity payments. You will need to pay off the equity line quickly, usually within six months to make the next equity payment. This is necessary to take full advantage of the mortgage cycling strategy. Making these payments quickly reduces the principle balance and the amount of your monthly payment that is applied to interest.

If you use the home equity line of credit option to cycle your mortgage it is important to shop for a competitive home equity loan as you will have to pay interest, lender fees, and often closing costs to secure this loan. Most of these fees will be one-time up font expenses and you will only pay finance charges when you borrow against the equity line of credit. It is important to remember that home equity lines of credit come with variable interest rates; when interest rates go up, your payment amounts and finance charges go up with them. You need to factor this expense into your calculations before deciding to go forward with a mortgage cycling plan.

To implement a mortgage cycling plan effectively you need to continue making the equity payments for a period of ten years. There are risks involved when using a home equity line of credit; because your home equity line is secured with your home if you fall behind on the payments you could lose your home. You can learn more about your mortgage options by registering for a free mortgage guidebook.