Honey, I shrunk the mortgage! How to correctly pre-pay your mortgage, and save the interest!

The Way We’ve Done It Write a check, attach a coupon. Once a year write a check for an extra payment or Write a second check with a note: – “This is a principal payment on loan #”

The way a mortgage works

The way a mortgage really works

The way a mortgage works We have been told to payoff principal. And this is how it is applied… And save this much?

The way a mortgage works 5 prepayments of $1, for 5 years =$5, regular payments less 60 regular payments less 5 prepayments = 295 remaining payments A savings of approximately $700 of interest After 5 years

The way a mortgage works Wouldn’t it be better to do this? And not pay this?

The way a mortgage works 1 prepayment per month for a total of $ (average $153.95/mo) 360 regular payments less 60 regular payments less 60 prepayments = 240 remaining payments SAVING $56, in interest After 5 years

The way a mortgage works

Remember, this is why it works

And here is how to do it!

The Correct Way to Prepay a Mortgage Get a copy of the lender’s amortization schedule. Make your regular payment 1 st ! With a separate check, pay the precise, principal portion of the next mortgage payment(s). Tell the lender, in writing, which payment you are pre-paying (use Pete’s form). Make the prepayment at the same time as your regular payment.

The Correct Way to Prepay a Mortgage Keep records! Of all payments! Keep all canceled checks! Check the statements from the Lender to make sure your payments are properly credited. Contact the Lender Immediately if a mistake occurs

Sample Prepayment Notice Exact prepayment $____________________ Date ________________________________ Borrower ____________________________ Loan Number _________________________ In accordance with my borrower’s right to prepay, enclosed is a principal prepayment check # _____ as PAYMENT IN FULL of this specific payment # _____ in my amortization schedule as provided by you. Thank you for dismissing all interest charges related to this specific principal prepayment.

Honey, that’s how you shrink the mortgage!