How to Lower a Mortgage Principal

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Reducing the principal amount you owe on your home will reduce the amount of interest you pay over the term of the mortgage. For example, if you borrow $250,000 over 30 years at 5 percent interest and pay only your monthly payment of $1,342 every month, you'll end up paying $483,140. That's like paying double for your home. Another reason to lower your mortgage principal is if you owe more on your home than it is worth. You don't want to pay to sell your house when it comes time.

Pay It Down

Divide the amount of your mortgage payment in half. For example, half of a $1,342 monthly payment rounds up to $672.

Pay $672 to your mortgage company every other week instead of paying $1,342 once a month. This will have the effect of making one extra payment, all towards the principal, each year. It will reduce your principal by $1,367 yearly, saving you $42,055 in interest over the term of the loan.

Read your mortgage contract to see if your lender accepts principal payments annually on the anniversary of your loan. If so, find what percentage the company will allow. It may be anywhere from 10 percent up to 25 percent of the principal balance.

Open a savings account earmarked for extra money that is to go toward your annual principal payment. Each month deposit one-twelfth of the percentage amount your mortgage company will accept. For example, if your principal is currently $200,000 and you can pay 10 percent annually, you'll want to set aside about $1,667 each month to pay $20,000 on your mortgage anniversary date.

Lenders' Programs

Determine if you meet the criteria for a principal reduction program, or PRP. They include owing more on your home than it is worth, being current on mortgage payments, living in the home you owe the mortgage on, having a credit score of at least 500 and qualifying for a refinance.

Contact your current mortgage holder to see if they offer a PRP or short refinance program, known as SRP. Discuss requirements and qualifications, as each lender's programs may differ.

Apply for an SRP or PRP with your lender or make application with a new lender if your current company doesn't have PRP options.


  • Homes with FHA loans currently on them don't qualify for PRP programs through conventional lenders. However, Fannie Mae and Freddie Mac do have home affordable refinance, second lien modification and foreclosure alternative programs to help FHA borrowers reduce the principal on their mortgages.

    Consult your mortgage lender to determine how an SRP or PRP will affect your credit, if at all. Money Talks News reports that any time a loan or even just part of a loan is forgiven, it could negatively affect the borrower's credit.