Pay Off Loan Early With Amortization Schedule

Discussion in Mortgage & House Payments started by cluckeyo • May 26, 2016.

  1. cluckeyo

    cluckeyoActive Member

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    Years ago, when we bought our first house, we were given some good advice from the man who sold it to us. He said to get an amortization schedule. It would help us pay our loan off early. So we got one, and it was a real eye opener for me. An amortization breaks down the nitty gritty details of your loan and shows you how much goes to principal and how much goes to interest each month. And if you got a loan with no prepayment penalty, then you can use it to systematically pay down your debt early. It amazed me when I first looked at it, that out of our payment, $100's went to interest each month and only like $20 went to principal. So easily I could just pay another $20 extra each month and cut the life of the loan in half. It does change as things go along, but that's how a loan begins. So for the first couple of years, I socked away all I could to principal. In 4 years, our 20 year loan was paid in full. Knowledge is power. Go online and get an amortization schedule, or get one from your bank that is providing the loan. You will save some serious cash!!
     
  2. Corzhens

    CorzhensWell-Known Member

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    You are right. The shorter the term of the loan, the smaller the interest you have to pay. However, a bank loan has a fixed interest rate for a year and in the succeeding years, there is that thing called repricing which the bank adjusts the interest rate - it can be lower or increased, depending on the market indicators. For a borrower, you cannot just pre-terminate your loan, meaning you borrowed money on a term of 5 years and after 1 year you will pay the entire balance. In that case, it would be subject to a pre-termination penalty. So that borrowers is tied up with the term of the loan in the contract.
     
  3. Zyni

    ZyniWell-Known Member

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    This is good information, and you made great use of it. Congratulations on paying your home off so early.

    It is a real shock to see how much goes for interest only, early on, isn't it? Applying extra to the principle will definitely help pay it down faster. Some people recommend paying biweekly instead of making a monthly mortgage payment as well. You do have to make sure there are no pre-payment penalties, but that's really something you should know before taking out a loan.

    Even one extra mortgage payment annually is said to take years off your home loan. It's definitely worth looking into or discussing with a professional if you have questions.
     
  4. xTinx

    xTinxWell-Known Member

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    That's pretty much on point. But sometimes the basics of the whole process can get lost in translation. You just have to know your "due date" and pay the required monthly amount on or before the said schedule. This saves you the trouble of surging interest rates. If possible, just "auto debit" your loan from a personal savings account. This method is more convenient and less of a hassle. All it takes is for you to stick to your budget all the time.
     
  5. Jamille

    JamilleActive Member

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    If the loan agreement comes without a prepayment penalty, then it will be prudent to make extra payments towards the principal. This reminds us to draw a financial plan ahead before plunging into a mortgage debt. If we do intend to pay our mortgage debt earlier than the agreed terms, then we must make sure that the loan agreement does allow prepayment without penalty/cancellation charges.

    In my country, you can't just decide to allot more for the principal because bank loans are paid based on a fixed schedule which may or may not change after a certain period depending on prevailing interest rates in the market at the time of repricing. We also get an amortization schedule as part of the documentation. We have a government housing agency, though, and they allow payment towards the principal if you can make a batch of 6 months amortization in a single payment. Either way, we cannot just add some amount and apply monthly and have it applied to the principal at will.