# Question on the prepayment of mortgages on a fixed 30 years loan?

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I am in the process of buying a house that is under construction and I have things about pre-pay your mortgage read. According to my GFE my front door and 835 died of interest, hazard ins. Initial commitment is 37, a mortgage commitment fees 61 is approximately 286 me \$ 1,219 deposit. I get a bigger tax return if I just made an extra payment a year, saving as much as I chose? I saw an additional payment towards the principal will hit 6-7 years, but it seems a lot. I think I must be missing something. Can say perhaps that if I every February an additional payment (I close next month) for the next 3 years I have been repaying the loan in 15 years? (3×5 years of low-ball estimate = 15 years of my 30) Can anyone explain in detail, if I understand what it takes to really make advance payments to my balance. Thank you, I’d pay extra on my tax return every February in fact, the mortgage TN 149 050 5.375 @ @

loangirl75
February 18, 2011 at 9:28 pm

This accurate. Just one extra principal payment a year will knock at least 13 years off a loan. You have to understand, for the first 15 years, you are paying more toward interest than principal. Your interest is based off the balance of your principal, therefore if your principal balance decreases, so will the amount of interest you are paying. The better idea is to take your monthly payment and divide it by 12 and pay this extra every month, instead of one lump sum a year. That way you are decreasing your principal every month instead of once a year.

Jennifer M
February 18, 2011 at 9:50 pm

If you go to this website and scroll to the bottom there are calculators that show you how much you save and how much sooner you will pay off your mortgage.

http://www.mycalculators.com/ca/loancalcm.html

It isn’t one extra payment knocks off six to seven years. If you make one extra payment PER YEAR for the life of your loan then it will be paid off in about 22-23 years.

Good luck.

Jeff T
February 18, 2011 at 10:33 pm

With your principal and interest being \$ 835/month, I’m guessing your mortgage is about \$ 125,500 @ 7%, and I’ll use those numbers. I’m not going to include the escrow, insurance escrow, and property taxes, because those don’t go toward paying off your house.

Your first payment of \$ 835 includes \$ 732.12 interest and \$ 102.88 toward paying off the principal. (That’s probably a shock right there; how little goes toward the principal for the first few payments)

If you make an extra payment, that counts the same as depositing the money into a savings account, earning the same interest rate as the mortgage, for the life of the loan.
Because that’s how much you have prevented your debt from growing.
With savings, the longer you leave it in, the bigger it grows.
With extra payments, the earlier you pay it, the more it helps pay off the mortgage.

A one-time payment of \$ 1200, during the first year you have the mortgage, will shave about 10 months off your 30 year mortgage.

If you make that same \$ 1200 payment once a year, you continue to shave additional 9-10 month chunks off the length of the mortgage.

February 18, 2011 at 11:19 pm

most everyone has the right idea here, but I like to put things in numbers 149,050, 30yr fx, 5.375%, your total finance charges are 300,469.37. Same numbers, only run on a 15 year term, your total finance charges are 217,439.77. 83k saved right there. If you have the money to pay more, do it. reduce the term down to 15 or 20 years, have it paid off and put your kid through school or retire early, that’s your decision based on your goals and dreams, hope this helps

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