Making a Prepayment on a Mortgage
Making a Prepayment on a Mortgage
I have read a lot about the advantage of making an extra payment to reduce the principal on a long-term mortgage. But when I make the extra payment, do I submit only the principal amount or do I submit an extra full monthly payment — that is, do I include the tax escrow payment as well?
Marc Eisenson, a principal of www.goodadvicepress.com, and author of several books on mortgage payment strategies, said that to make a prepayment, you would send in the required monthly amount, including any escrow payments required, along with any additional principal that you want to prepay. “Your mortgage coupon probably has a line where you can indicate the additional principal amount you are including,” Mr. Eisenson said.
He noted that by paying off principal early, a borrower saves interest and reduces the term of the mortgage. “The more you prepay, and the sooner you do it, the more time and money you save,” he said.
For example, Mr. Eisenson said, on a $250,000 mortgage at 7 percent for 30 years, the required monthly principal and interest payment is $1,663.26. Making a prepayment of $100 a month will save $66,779 in interest over the term of the loan and reduce the term by 4 years and 10 months.
