Getting out of mortgage debt faster is a great way to save money on interest payments. For those who make additional payments on their mortgage it can save them money in the long term. A homebuyer can make prepayments on their mortgage principal any time, once a month or once a year, or whenever they want to. The principal is the amount they borrowed to buy the house and have to pay back to the lender. This is separate from the interest, which is what the lender charges you for lending the money. If you pay extra on the principal, it can help pay off your mortgage before the maturity date of the loan.
Blog Category: prepayment
If you type “Mortgage Calculators” into Google you will get over 2 million results and Google’s simple mortgage calculator at the top. The Google mortgage calculator will give you a rough idea of mortgage monthly payments based on a simple calculation of the interest rate and mortgage term. It doesn’t answer any details, like: how many payments do I have to pay in order to pay off my mortgage? In 15 years how much mortgage will I have left to pay if I increase my monthly mortgage payment? What happens if you want to increase or decrease the interest rate, or change the amount of years of your home loan? With all the mortgage loan calculators out there isn’t it best when you can see the big picture of your home loan payment and how it can work for you.
I get a lot of clients asking me if they would save a lot of money by setting up a bi-weekly mortgage payment plan. A bi-weekly mortgage is one where you make a partial mortgage payment that gets deducted out of every paycheck, which for most people is every 2 weeks. With 52 weeks in a year, and 26 pay periods if you get paid twice a week, it is a convenient way to make 13 payments a year instead of 12. I hear people say it is a fraud, and not to do it. And then I hear people say that you can cut 13 years off of a 30 year loan, and that it is amazing. It is neither. Yes, you will
If you are going to be in your house long term, or forever, prepaying your mortgage is a great idea if you can afford to pay extra. The best way to save money on debt is to not have it! But many people do not realize that prepaying a fixed rate loan does not reduce the monthly payment. Prepaying a loan simply shortens the term. So prepayment builds equity faster, and ends the loan sooner, so you save money by having the loan for a lesser amount of time.