How Mortgage Prepayments Work
Cashing in on a Crumbling Economy
You have negotiated the best possible terms for your new loan, whether it is an auto loan, personal loan or a mortgage. Congratulations! Now, how would you like to pay it off in half the designated time? Early loan repayment is doable, if you follow the 7 P's.
We are two years into an aggressive prepayment plan on our 40-year mortgage. Both years I met the yearly goal, and things are on track to continue our quest to pay the loan off in 20 years or less.
How is this plan different than a bi-weekly plan? Often, you have to pay the lender to set up the payments, and you are just making extra payments, interest included, to the loan. Even though the balance will be paid off early, you will still be paying interest.
Another option is to make one large extra payment a year, perhaps with your tax refund or a bonus check. As long as it is going toward the principal, it will work the same as extra monthly payments.
So what are the advantages early loan repayment? The best is the amount of interest you will save. I estimate we will save over $125,000 in interest when we pay off our mortgage. Plus, you will have all those extra months and years of no payments, freeing up your income for other things.
It may seem an impossible dream, but if you really want to pay off your loan early, you can do it too. You may have to forgo that expensive new car with the high payments, or skip going out to eat every other month, but you can find the extra money. With a firm goal and a little determination, you can pay off your loan early.
Shaunna Privratsky is an expert in personal finance, living frugally with her family in North Dakota. Between writing, reading and gardening, she is always on the lookout for bargains. Please sign up for the free newsletters at The Discount Diva.
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