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 Should You Prepay Your Mortgage?I get a lot of questions from customers about the benefits and drawbacks of prepaying their mortgage. I define prepaying as paying any additional monies over and above the normally scheduled payment. Many financial planners tout the tremendous savings that can be realized by doing this; some mortgage companies even send their customers solicitations to convert to a bi-weekly payment, which has the effect of making one extra payment per year on your loan. Recently I have seen a new product being sold that uses a combination of computer software and other debt instruments to reduce the term of your loan. The thing I want my customers to understand is this: any time you make a payment on your mortgage above the amount is due, it comes off the principal, which will reduce the amount of interest you pay and shorten the term of the loan. How much extra you pay and how often you do it determines the savings, which is what makes bi-weekly programs so attractive. They force you to discipline yourself to pay extra on a regular basis, which guarantees significant savings. For a simple example, consider: On a $200,000 loan at 6 percent for 30 years, your monthly principal and interest payment is $1,199. If, instead of paying $1,199 per month you pay $600 bi-weekly, you will reduce your loan term to 24 and a half years and you will pay about $50,000 less in interest. I call that significant. But the point is any prepayments will save you money. There are many different strategies you might deploy, and if you have an adjustable rate or an interest only loan things get even more interesting. If you are a numbers person and enjoy this sort of thing, you may want to invest in a financial calculator which will show you the effects of any type of prepayment scenario, or you can just call your mortgage person and run through scenarios with him. Carl Trawick is a Mortgage Specialist and Licensed Mortgage Broker with the firm Access e*Mortgage. He can be reached at 904-343-1145 or ctrawick@nefcom.net
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