Strategies for Pre-Paying Your Mortgage

Posted at 4:16 AM, Mar. 8, 2007

In a recent article, noted real estate columnist, Bob Bruss, talks about strategies for prepaying your mortgage.  One of the strategies that he advises AGAINST, and I agree with him, is the bi-weekly mortgage prepayment plan.

Unless this is a specific program offered by your lender, you should probably skip it.  The reason is that too many of these bi-weekly plans offered by  so -called specialists, can often result in a homeowner being scammed because the company takes your payments, deposits in their own accounts and they don't send to your lender in the manner in which you would see the benefit.

Even subscribing to a bi-weekly program offered by your lender might not be the best option for you.  Not because there is anything to be suspicious of, but, because generally the lenders charge you a set up fee and a monthly surcharge or fee to administer it.  With discipline, you can do this yourself.

Bob offers these examples:

To get your 30-year mortgage paid off faster, these are the approximate extra percentages of your current monthly principal and interest payment to add for "extra principal payment" to accomplish your goal:

• 20-year mortgage payoff = 10 percent monthly payment increase
• 15-year mortgage payoff = 20 percent monthly payment increase
• 10-year mortgage payoff = 50 percent monthly payment increase

To calculate the exact extra principal payment to add to each monthly payment to reach your prepayment goal, use a financial calculator to enter the variables for interest rate, remaining mortgage balance and number of payments remaining to arrive at the exact increased monthly payment needed.

One of the calculators I use is an online calculator that you can use to enter the data.  The reason I like it is because it is not associated with any bank or loan site, so there is little likelihood that you'll be bothered by pop up windows.  Here it is:
http://ray.met.fsu.edu/~bret/amortize.html