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CHAPTER XIII-- AFTER THE INK DRIES . . .

LESSON 27: PREPAYMENTS

The motivation for prepaying a mortgage is simple -- you can save thousands of dollars in interest and shorten your loan term considerably! Many borrowers will want to review their loans, especially after receiving pay raises and bonuses, to see if prepaying makes sense.

Remember

Prepaying a mortgage is an easy, low-risk way to cut debt and build home equity quickly.

There are two basic ways of prepaying a mortgage:

1) Create a prepayment schedule yourself.
You may want to send in a fixed, extra payment each month, for example, or one large payment a year. Don't start prepaying without contacting your mortgage servicer first to find out exactly how the payment should be handled. Some borrowers can write one check and just fill in a line on the payment statement that indicates that part of the check amount is for prepaying principal. Others will have to include separate checks with memos on them indicating the money is for prepaying principal. No matter what, make sure you won't trigger any prepayment penalties you agreed to at closing! See Tip 1

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Benefit More flexible -- not locked in to a higher monthly payment during financial crisis
Drawback You must maintain schedule and records.


ExampleLet's say you have a 30-year fixed mortgage of $100,000. The interest rate is 7 percent. The monthly principal and interest payments would be about $665, and you would pay $139,508 in interest over the life of the loan. By adding $25 a month, you could shorten the term by more than three years and save $18,214 in interest. For an extra $100 a month, you would save $50,506 in interest and shorten the term by nearly 10 years.

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TABLE OF CONTENTS

CHAPTER I
  Lesson 1
  Quiz

CHAPTER II
  Lesson 2
  Quiz

CHAPTER III
  Lesson 3
  Lesson 4
  Lesson 5
  Quiz

CHAPTER IV
  Lesson 6
  Lesson 7
  Quiz

CHAPTER V
  Lesson 8
  Lesson 9
  Quiz

CHAPTER VI
  Lesson 10
  Lesson 11
  Quiz

CHAPTER VII
  Lesson 12
  Lesson 13
  Lesson 14
  Quiz

CHAPTER VIII
  Lesson 15
  Lesson 16
  Lesson 17
  Lesson 18
  Quiz

CHAPTER IX
  Lesson 19
  Quiz

CHAPTER X
  Lesson 20
  Quiz

CHAPTER XI
  Lesson 21
  Quiz

CHAPTER XII
  Lesson 22
  Lesson 23
  Lesson 24
  Quiz

CHAPTER XIII
  Lesson 25
  Lesson 26
  Lesson 27
  Quiz

CHAPTER XIV
  Lesson 28
  Lesson 29
  Lesson 30
  Quiz

Definitions





RELATED STORIES

Benefits of a biweekly mortgage


Prepaying your mortgage vs. investing your money


Cut mortgage costs -- consider prepaying

 
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