Mortgage Cycling: Will it transport you to financial freedom?

Mortgage cycling is a repayment strategy for those who want to get out from under mortgage loans and off the grid of rising mortgage rates. Like other accelerated payoff plans, it involves making more payments than required, at fixed intervals, in order to reduce your home loan debt. What distinguishes the cycling approach is that it works more aggressively than other strategies. If normal amortization of mortgage loans is like walking, and bi-monthly plans are like jogging, then mortgage cycling is Lance Armstrong going downhill with a strong wind at his back.

The mortgage cycling strategy

By paying off your principal early, you also reduce your interest payments, and a greater percentage of each monthly payment goes toward paying off principal. The faster you reduce the principal, the faster you pay off the loan.

Let's say, for example, that you have a mortgage loan of $100,000. Make two extra principal payments of $5,000 each, spaced six months apart, to contribute an additional $10,000 a year to paying off the principal. During the course of a decade, that repays $100,000, or your entire balance.

In actuality, you'll pay your loan off in less than 10 years, because your monthly payments also continuously contribute to nibbling away at principal. As the principal shrinks by more than $10,000 annually, your interest payments are put on a starvation diet and soon wither away to nothing.

Unless you have cash reserves to invest, mortgage cycling isn't a practical strategy, because it may put unnecessary strain on your budget. Some cyclers use home equity loans to come up with their lump sums, and pay off the equity loans gradually each year. But if interest rates are rising-or home values are declining-equity loans may not be a viable aid.

Crunch the numbers ahead of time, and if the results balance out in your favor by eliminating your mortgage loan, it may be time for you to become a devout mortgage cyclist. Within 10 years, you could cross the finish line, free of mortgage loans, and a lot healthier and fiscally fit.