Prepayment Can Save You in the Long Run: The Benefits of Advanced Mortgage Payments

So you have signed a 30-year mortgage on the home of your dreams. Just because it says 30 years doesn’t mean that it has to take you that long to pay it off. Prepayment of your mortgage is a simple way to cut down the length of your mortgage.

You are probably saying to yourself, “if I had money to prepay, why wouldn’t I just take out a shorter-term mortgage?” The answer is simple – life is unexpected. You may get a bonus at work, find that your great aunt left you a sizable inheritance or perhaps get a salary increase. These are always you can prepay on your loan.

A shortened loan period is not the only benefit to paying more on your home loan. You can use the added money to build your home’s equity that can be used in the future. It is like a mini-investment that benefits you both now and in the long-term.

However, there can be penalties incurred for advanced payments. It is wise to check with your provider before making any prepayments. Also since your interest decreases with prepayment, analyze the condition of your taxes to see if prepayment is a viable option.
Most importantly, once that money is prepaid, it is gone, so research your investment options and see if the money is needed more in a different capacity.

If you decide that prepayment is the best option for you, there are a couple of ways you can make those payments. The first is to undertake it yourself. Add a little more money to each payment and monitor what you pay and how that affects your balance. Be your own bookkeeper and keep detailed payment records. Secondly you can change your payment schedule from once a month to twice a month with biweekly payments where you pay 50 percent of your monthly payment every other week.

Prepayment is a great way to save money in the long run, and pay down your home loan before its time.