Should I prepay my mortgage?
Mortgage prepayment plans are popular options and for good reason! Prepaying a mortgage can save tens of thousands of dollars over the life of the loan, plus it’s easy to do once you understand the basics about mortgage interest and mortgage principal.
Prepaying a mortgage is a great way to save on interest charges. For example, instead of taking out a 15-year mortgage, it might make more sense to take out a 30-year mortgage and make additional payments toward the mortgage principal. The 30-year interest rate is usually a little higher, but you have the option of making lower payments should you encounter any hardship such as job loss or illness.
To find out how much you can save by prepaying your mortgage, first review your home loan to make sure you don’t have a prepayment penalty. Next, determine how much extra to put towards your mortgage. You can decide to make one large lump sum payment, an annual large payment, small monthly payments or even bi-weekly mortgage payments.
When sending additional payments or extra monthly amounts, indicate on the payment how it is to be credited to your account. Finally, use a mortgage calculator to see how much you will save by prepaying.