Mortgage cycling is a repayment strategy that promises to cut years of repayment off your mortgage and save you thousands of dollars. Payoff your mortgage in 10 years without refinancing your current mortgage. How does it work and is it worth the risk?

Amortization is the process by which part of your payment goes towards the principal loan balance and part goes to interest. Mortgage loans are front loaded with interest; this means in the early years nearly all of your monthly payment is made to interest. The interest portion of your monthly payment is calculated monthly based on the outstanding balance of the loan. By making large equity payments you are reducing the amount of interest you pay faster.

The Mortgage Cycling repayment strategy involves make lump sum payments of the mortgage principal twice each year. This strategy only works if you can come up with the cash to do this every six months. By making large equity payments of $5,000 or more every six months, you reduce the amount of your regular monthly payment that goes towards interest and build equity in your home faster.

If you are unable to save up the cash to make large payments of $5,000 or more every six months, some people use a home equity loan to access the cash. This allows them to repay the $5,000 over a six month period.

Home equity loans, also called home equity lines of credit, can be expensive to establish; you may be required to pay fees similar to refinancing your mortgage. These fees could include property survey, appraisal, title search, points, administrative fees, and legal fees.

The risk involved with using a home equity loan to make equity payments involves rising interest rates. As short term interest rates rise the interest rate you pay on your home equity line rises with them. If your cash flow dries up and you are not able to make the payments on your home equity loan you could lose your home. If you have to sell the home for some reason the home equity loan would have to be paid off prior to selling.

Mortgage cycling requires paying your regular monthly payment and the home equity loan payments for a ten year period. This is a risky way of robbing from Peter to pay Paul; however, it could save a lot of money in interest and quickly reduce your principal balance.