Prepayment

Simply defined, prepayment involves paying back your mortgage faster than the agreed terms. By paying in advance, you can significantly shorten the term of the loan and the total amount of interest that you are required to pay.

There are many different ways in which borrowers can go about prepaying. A popular method is putting any unexpected money (inheritance, gifts, raises, and so forth) toward your mortgage.

Some people prefer to prepay more systematically, which requires considerable discipline and self-motivation. This kind of prepayment involves simply paying over and above the required monthly payment. Many borrowers prefer this method of prepayment because it is flexible; if money is tight, you can always revert to paying the minimum. In other words, you are never under any obligation to prepay.

Other borrowers prefer a stricter prepayment plan. For these people, a biweekly payment plan is a better option. By making biweekly payments instead of monthly payments, borrowers make a total of thirteen payments annual payments instead of twelve. This prepayment method is less flexible because you cannot revert to monthly payments in a financial bind.

Note that the biweekly payment system is not always available. If you think you are interested in prepayment, you should make this a priority as you comparison shop.

In fact, some mortgages do not allow prepayment at all, or impose expensive fees that discourage it. Even if you do not anticipate being able to prepay, it is always best to choose a mortgage that allows it. You never know when your fortune might change, and you may be grateful to have prepayment privileges later in the life of the loan.