Prepaying Your Mortgage for Fun and Profit
Prepaying Your Mortgage for Fun and Profit
"To prepay your mortgage simply means to send the lender (actually, the servicer) more money than is required. Prepaying can save you a lot of interest, reduce the term of your loan (from 30 to 22, for example), and build equity much more quickly. Having more equity makes it possible to tap your home's equity sooner, should you need it; or it can put you in a better position to refinance if you want to. Those are worthwhile goals, but that doesn't necessarily mean that prepaying is the right thing to do in all cases.
"Critics point out that in times of low interest rates, it's possible to get a better return on your money by investing it shrewdly. They also point out that, as the years pass, you'll be paying off your loan with inflated dollars. Nonetheless, millions of people prepay their loans, and they can't all be wrong."
-- From "How to Shop For Your Mortgage"
Some suggested reading about prepaying your mortgage:
- I Can Save You $41,911. Interested?
- Mortgage Myths Could be Costing You $25,000
- "Prepaying Your Mortgage," the latest booklet in HSH's "A Homeowner's Guide To" series
And you'll need a calculator to help you with the 'what-if' problems. Download the Home Buyer's Calculator from Wheatworks Software. It's a free Windows calculator which will allow you to enter a single prepayment, or a range of prepayments, to see the long-term effects of prepaying your mortgage.
What's the difference between getting a bi-weekly mortgage and simply prepaying a standard one? Not much; the overall effect on your loan will be about the same. For more on bi-weekly loans, click here.
We've been asked "I want to use the Home Buyer's Calculator to see how my loan is affected by not prepaying every month. For example, I want to prepay during the first year, skip a year, and prepay during the third year. How can I do this?"
- Enter the start date, rate, & term of the mortgage from "day one."
- Enter the range of *consecutive* prepayments. (For example, you prepaid on payments 13 through 20, then skipped some. You would enter the prepayments through the 20th payment.) Get the amortization schedule, and jot down the remaining balance and the remaining term.
- Start over, and enter the remaining term and balance (and the rate, of course) as a "new" loan.
- Go to step 2. Repeat as necessary.
(For future reference, this is also how you would calculate an adjustable rate mortgage.)
More help from HSH.com
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with no change to the federal funds rate and no changes to other monetary policy tools.
Mortgage Rates Radar 04/26/2016: Fed impending, rates edge higherHSH.com releases its latest Weekly Mortgage Rates Radar showing a modest increase in mortgage rates during the seven-day period ending April 26, as markets prepare themselves for new interest rate messages from the Federal Reserve. The Weekly Mortgage Rates Radar reports the average rates and points offered by lenders for the two most popular types of mortgages, the conforming 30-year fixed-rate mortgage and the conforming 5/1 adjustable-rate mortgage (ARM).
How quickly can you refinance after a bankruptcy?We have received a lot of questions over the years regarding how quickly you can refinance a mortgage following bankruptcy.
Mortgage Rates Radar 04/19/2016: Mortgage rates fairly flatHSH.com releases its latest Weekly Mortgage Rates Radar showing almost no movement in average rates for popular mortgage types during the seven-day period ending April 19, as there is little news to move them strongly in one direction or the other. The Weekly Mortgage Rates Radar reports the average rates and points offered by lenders for the two most popular types of mortgages, the conforming 30-year fixed-rate mortgage and the conforming 5/1 adjustable-rate mortgage (ARM).
Mortgage Rates Radar 04/12/2016: Mortgage rates still edging lowerHSH.com releases its latest Weekly Mortgage Rates Radar showing another downturn in popular mortgage rates during the seven-day period ending April 12, as financial markets enjoy a period of relative quiet. The Weekly Mortgage Rates Radar reports the average rates and points offered by lenders for the two most popular types of mortgages, the conforming 30-year fixed-rate mortgage and the conforming 5/1 adjustable-rate mortgage (ARM).