Have you ever considered prepaying your mortgage? It may seem daunting, but prepaying your mortgage can lead to significant savings when done correctly. And luckily for you, we’re here to explain exactly how reducing your loan principal can be achieved and why it’s worth doing.
What is mortgage prepayment, and why should you do it?
Mortgage prepayment pays off part or all of your loan before its original maturity date. This means you are taking responsibility for reducing the interest you owe on loan, thus lowering your total debt. Prepayment allows you to save on interest, reduce the overall cost of borrowing money from a lender, and shorten the life of your mortgage.
- The most common ways to prepay your home mortgage are making an extra payment toward the principal each month, making lump-sum payments when possible, and increasing your monthly payment so that more goes toward the principal. Doing any one (or combination) of these will lower the total amount owed and reduce the interest you pay.
- Even making small payments ahead of time can make a huge difference in the long run. Reducing your principal amount means reducing the interest you accrue – and that adds up to great savings over the lifetime of your loan. Prepayments also mean that it’s easier to become debt free sooner rather than later, which is a bonus to consider when weighing the pros and cons of mortgage prepayment.
- When done correctly, making prepayments on your mortgage can be a great way to save money in the long run and reduce the debt you carry; it’s essential to research all your options closely before committing to any specific strategy so that you know what will work best for you. With proper planning, you can save money and time with mortgage prepayments.
The Benefits of Paying Ahead of Schedule
Paying off a loan before its due date is called prepayment, and it usually involves paying an amount that exceeds the regularly scheduled payment. The primary benefit of making these extra payments is that they reduce your loan principal—the balance owed on loan—which means you pay less interest over the life of the loan. So if you make a significant enough prepayment, it could shave years off your repayment timeline and save you thousands in interest charges.
How to calculate the amount you should prepay each month
Before you can start making prepayments on your mortgage, it’s essential to determine how much extra you should be paying each month to reach your goals. This calculator will consider the amount of principal and interest due, the interest rate on your loan, and any additional payments you plan to make to estimate how much you would need to pay per month to meet your financial goals.
The calculator will also tell you how long it will take to pay off the loan if you continue making regular payments versus prepaying each month. This information can help you decide which strategy makes more sense for you and your financial situation.
Making prepayments on your mortgage can be a great way to save money in the long run and potentially shorten the life of your loan. By using a calculator to determine how much you should prepay each month, you can ensure that you are taking full advantage of the savings available with prepayment while still staying on track to reach your other financial goals.
Making Prepayments Easy
Although making extra payments on your mortgage may sound intimidating, there are a few steps that can help make it easier:
• Start small. Try setting up an automatic payment plan so that extra money is taken from your account each month without effort.
• Make lump sum payments when possible.That way, you’ll build equity faster while simultaneously saving on future interest charges.
• Pay bi-weekly instead of monthly if possible. Since there are 52 weeks in a year, paying half of your regular monthly payment every two weeks can effectively result in one extra payment per year—thus helping to reduce both the length and cost of your loan even more quickly than if you were paying only once per month as usual.
Tips for making extra payments on your mortgage
Ready to save money and pay off your mortgage sooner? Here are a few ways you can get started with making extra payments on your loan:
• Set up an automatic payment plan to take extra money from your account each month without effort.
• Make lump sum payments whenever possible, such as when you receive a bonus or tax refund.
• Pay bi-weekly instead of monthly if possible since it will result in one extra payment per year.
• Use a prepayment calculator to determine how much extra you should pay monthly to reach your goals.
• Monitor your progress regularly and adjust your prepayment amount if necessary.
With the right strategy, you can take advantage of lower interest rates without refinancing or renegotiating your existing contract. By following these tips, you’ll be able to make the most of prepayments and reach your financial goals in no time.
Conclusion:
Making additional payments on your mortgage is one way to save big in terms of both money and time spent on repayments over the life of the loan. Although it may require some financial planning and discipline to do so effectively, following these tips can help make prepayment relatively easy for anyone willing to put in just a little bit more effort each month toward their mortgage goals!