And Why To Prepay Your Mortgage
of the best ways to have more cash, retire early, and enjoy debt-free
living is to prepay your mortgage, an option which even lenders
live in a society where home debt is generally mounting. The Consumer
Federation of America reported this month that between 1989 and
1999 declined by $1,500, in part because of a greater willingness
to increase mortgage debt.
for financial reasons and as a matter of personal preference, many
people favor a home with less debt. Why wait 30 years to be mortgage-free,
they reason, when the same goal can be accomplished years earlier
without refinancing or new closing costs.
prepaying a loan seems attractive, the first question to ask is
whether prepayments are permitted without penalty. Some loans punish
borrowers for the crime of debt reduction by insisting on a penalty
if some or all of the loan is paid in advance.
good news regarding prepayment penalties is that they seem less
frequent and less harsh than in the past. In some cases today, penalties
expire after several years. With other loans, prepayment penalties
only kick-in after a certain point, say when there has been an annual
loan reduction of more than 20 percent.
some cases there are loans which lack penalties but have specialized
prepayment rules. For instance, under the FHA program if a prepayment
is made after the monthly payment due date it will not be credited
to the account until the next month. In essence, the borrower could
lose the benefit of a prepayment for as much as several weeks.
practice what you're likely to find now is that lenders want your
money as soon as possible. Forget penalties, say lenders, write
change of heart (yes, lenders have hearts) relates to a new view
of risk. It's nice to get extra money from penalties, but lender
portfolios are more secure when borrowers owe less.
don't have to prepay much to significantly reduce loan payoff times.
For example, suppose you have a $200,000 mortgage at 8 percent interest.
Pay $1,467.53 for principal and interest and the loan will be repaid
in 30 years. Pay an additional $100 a month and the debt will be
retired six years early. Pay $200 a month extra and you can be out
in a little more than 20 years.
continued at http://realtytimes.com/rtcpages/20001128_prepaymtg.htm