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Paydown refers to the reduction of the principal amount of a loan or debt through scheduled or additional payments. Paydown is a common practice for mortgages, auto loans, and other installment loans, where borrowers make regular payments to reduce the outstanding balance over time. A paydown can also occur when a borrower makes extra payments to pay off debt faster, thereby reducing interest costs and improving their financial standing.
A homeowner makes an extra $200 monthly payment toward their mortgage principal, accelerating the paydown process and reducing the total interest paid over the life of the loan.
• The process of reducing the principal amount of a loan through regular or extra payments.
• Common for mortgages, auto loans, and installment loans.
• Accelerated paydown reduces interest costs and shortens the loan term.
Paying down debt faster reduces the total interest paid and can improve the borrower’s financial flexibility.
Regular payments follow the loan schedule, while accelerated paydown involves extra payments to reduce the principal faster.
By reducing the outstanding principal sooner, a paydown decreases the amount of interest charged over the life of the loan.
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