Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.1 (Denver Mods 7/26/84) 6/24/83; site drutx.UUCP Path: utzoo!watmath!clyde!burl!ulysses!mhuxr!mhuxn!ihnp4!drutx!slb From: slb@drutx.UUCP (Sue Brezden) Newsgroups: net.consumers Subject: Re: Prepayment of Mortgage Message-ID: <693@drutx.UUCP> Date: Fri, 22-Nov-85 14:50:11 EST Article-I.D.: drutx.693 Posted: Fri Nov 22 14:50:11 1985 Date-Received: Sun, 24-Nov-85 05:13:38 EST Organization: AT&T Information Systems Laboratories, Denver Lines: 54 We prepay on our mortgage regularly. The ability to prepay without penalty was one of the things we looked at in deciding which lender to go with. The way we do it is to pay the principle on several payments ahead of the payment we are making. As an example of how it works, take the following figures for a loan (highly imaginary--but the idea is there.) payment number payment interest principle 1 975.00 954.95 20.05 2 975.00 954.25 20.75 3 975.00 953.35 21.65 4 975.00 952.85 22.15 5 975.00 952.05 22.95 6 975.00 951.15 23.85 7 975.00 950.55 24.45 8 975.00 950.00 25.00 The interest amount with each payment decreases, while the principle increases. By the end of the loan, each payment is mostly principle, but at the start it is mostly interest. So, you pay payment #1, $975.00 plus the principle on payments 2-6, which adds up to $111.35, if I've done my addition right. You have now avoided the interest on those payments, which is $4763.65. The next time, you pay payment #7, plus 8-12, or whatever. The nice thing about paying it this way--rather than just a lump sum of $100 or so each time--is that you can easily calculate when you will get the loan paid off, how many years you are knocking off your loan, and how much interest you have saved. The lender will give you a table with the amounts for your loan, and you just check them off. You need to start doing this early in the loan, when the principle part is small. That's the way to knock lots of years off your loan. We paid 6 years or so of our loan in the first year. It decreases after that, cause the principle per month increases, and you may not want to pay that much extra. A warning. You may not want to do this if your loan is assumable. It is better financially to let someone else assume it than to pay it off early yourself. Ours is not, so we aren't worrying about that. -- Sue Brezden ihnp4!drutx!slb ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ To search for perfection is all very well, But to look for heaven is to live here in hell. --Sting ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~