Making extra mortgage payments is a great way to reduce the
overall cost of your loan. This page will help you educate yourself
on how prepayment works.
Of course, more important than knowing how it works is making
sure that it is allowed. When you apply for a mortgage, you absolutely
must make sure that prepayment is allowed. Even if you never in
a million years believe that you will have extra money to put
towards the prepayment, you need to reserve the option.
Most reputable lenders allow prepayment, but you have to ask.
In theory, prepayment isn’t exactly ideal for lenders because
they lose some of the earnings they would have made through interest.
In practice, most lenders don’t mind because it allows them
to recoup their investment sooner. In any case, make sure that
you can do it, because prepayment polices vary widely among lenders.
You should choose a lender that doesn’t charge prepayment
Now that you know you must reserve the option to prepay, you
can take the time to understand how prepayment works. Essentially,
every time that you make a mortgage payment that is above the
minimum amount due, you are prepaying. This includes additional
payments, made separately from the regular fees.
The extra money goes toward reducing the principal, which means
that you will pay less interest and finish repaying the loan early.
As an added bonus, you will build home equity sooner, which will
give you access to special homeowners’ loans and other exciting
So, anytime you find that your budget permits, add a little to
your regular mortgage payment. While the benefits won’t
be immediately obvious, the decision will serve you well in the