There is one sure fire way to save money on your mortgage over the years and build equity much faster than usual and this is to prepay. When you make use of your prepayment option you will be able to pay off your loan years ahead of schedule. If you were to prepay as little as 20 dollars each month you could find yourself saving tens of thousands of dollars over the life of your loan. That is a huge amount of money, and the more you can pay off each month the more you will save and the sooner you will have your entire loan paid off. This sounds perfect right? But does it sound a little too good to be true to you? Well, this is a good choice for many people, but it is not perfect. Some mortgages have penalties for people who choose to prepay. This means that you could actually be fined for doing it. So before you make any extra payments check with your contract and your servicer to see if you could be hit with charges. And depending upon your tax bracket you could end up losing money if you do not pay enough extra each month. This can happen because interest payments are tax deductible and if you are paying off more you will have less to deduct over the term of the loan. In this type of case it might be a better idea to still save this money but invest in a high yield investment instead of prepaying with it. If you can prepay without any negative consequences then you should start by budgeting for this yourself. The amount that you prepay is up to you and what you can afford. Some people simply pay one or two extra payment each year while some who can afford to make many more. There is also a bi weekly plan that you can look into. Talk to your lender about this plan. If you take part in a program like this you will end up making 13 payments per year rather than the standard 12. There is one drawback to bi weekly plans and that is that many of them have a set up fee. This fee is sometimes as high as a few hundred dollars. Another drawback is that these plans are not the most flexible of plans but the convenience of them is often worth it. It all depends on your own personal preferences. Talk to your lender about all of your prepayment options in order to choose the plan that is right for you. |
