When you are in a loan, it means you need to pay the interest monthly. The lower your loan is, the lower interest you have to pay, it is the reason why repaying your mortgage is a great way to save thousands of dollars and you can build equity quickly and substantially shorten your loan term.
I will give you an example to show how much the prepayment save for you.Suppose that you have a 30-year fixed mortgage of $165,000 and your interest rate is 6 %. The monthly principal and interest payments will be $989, and now you would pay $191,133 for the interest over the life of the loan. You also need to add $25 a month, you could shorten the term by 23 months and save $14,734 in interest. For an extra $100 a month, you would shorten the term by six-and-a-half years and save $46,813 in interest.
Your mortgage contract always includes the prepayment penalties. Check with your mortgage servicer first so you do not trigger them. Prepayment also reduces mortgage interest which is tax-deductible and may not be the most prudent course, it is depending on your tax situation. If you also want to consider whether your return on investment might be higher elsewhere. The money you prepay becomes much less accessible.
Budget an extra amount for each month to prepay your principal. One tactic is to make one extra principal-and-interest payment per year. You can make a double payment during the month of your choosing, or you can add one-twelfth of a principal-and-interest payment to each month's payment. A year later, you will have made 13 payments.
As you know many lenders offer biweekly plans that require you to pay half of your monthly mortgage payment every two weeks. And this results in 13 monthly payments each year instead of 12 monthly payments.
Most biweekly plans carry an initial setup fee of a few hundred dollars, and a processing fee of a few dollars per payment and they don't offer much flexibility in a financial crisis. Especially those paying biweekly,they find this a good budgeting tool and they are willing to pay for the convenience of a no-hassle prepayment plan.
I will give you an example to show how much the prepayment save for you.Suppose that you have a 30-year fixed mortgage of $165,000 and your interest rate is 6 %. The monthly principal and interest payments will be $989, and now you would pay $191,133 for the interest over the life of the loan. You also need to add $25 a month, you could shorten the term by 23 months and save $14,734 in interest. For an extra $100 a month, you would shorten the term by six-and-a-half years and save $46,813 in interest.
Your mortgage contract always includes the prepayment penalties. Check with your mortgage servicer first so you do not trigger them. Prepayment also reduces mortgage interest which is tax-deductible and may not be the most prudent course, it is depending on your tax situation. If you also want to consider whether your return on investment might be higher elsewhere. The money you prepay becomes much less accessible.
Budget an extra amount for each month to prepay your principal. One tactic is to make one extra principal-and-interest payment per year. You can make a double payment during the month of your choosing, or you can add one-twelfth of a principal-and-interest payment to each month's payment. A year later, you will have made 13 payments.
As you know many lenders offer biweekly plans that require you to pay half of your monthly mortgage payment every two weeks. And this results in 13 monthly payments each year instead of 12 monthly payments.
Most biweekly plans carry an initial setup fee of a few hundred dollars, and a processing fee of a few dollars per payment and they don't offer much flexibility in a financial crisis. Especially those paying biweekly,they find this a good budgeting tool and they are willing to pay for the convenience of a no-hassle prepayment plan.
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