How to Do Prepayment for a Home Mortgage Bank Loan

Generally, if you take a mortgage loan with maturity period exceeding 25 years, you are paying around one time more than your initial loan amount for the entire loan period. Your mortgage loan is amortized in such a way that you are repaying the interest far more than the principle in early years. The repayment for principle then increase gradually until you repay more principle than the interest when maturity approaches.

 

Prepayment is a way to reduce the entire repayment amount by paying extra money on the principle. By doing that, you can expect to pay off your bank much earlier.

 

How to Do Prepayment for a Home Mortgage Bank Loan?

  • Pay off non-mortgage loan first. Before you think of doing prepayment, you should pay off the loan which charge higher interest rates, especially credit card debt.

  • Identify if there are investment tools with higher return. You should deeply consider whether you want to put your money to prepay your mortgage bank loan or to invest in a financial tool which may potentially earn a higher return.

  • If you have a mortgage calculator, find out how much you would save for entire home loan by prepaying different amount.
     

  • Determine the amount you want to prepay. Start with an amount you are comfortable with. If you have just pay off some of your other debts, you may use that available amount to repay your mortgage bank loan.

  • Generally, you need to write in to the bank to inform them of your intention to put extra amount of money to prepay the principle of your mortgage.

  • You need to check your statement and make sure that the extra money you have put in have served the right purpose - to prepay your home loan.

  • To make sure the bank make no mistakes, you can intentionally make two payments on the same date; the first one with ordinary repayment amount while the second one with the amount you want to prepay.

Prepayment is a term which are not familiarized by many people. However, if you can practice it, the result could be rewarding.

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