Question
Loan prepayment: if you pay off early you will not be entitled to a refund of part of the finance charges?
I don't think I completely understand this statement. I understand that if I pay extra on my mortgage every month it will reduce the number of payments I have to make but is this also saying that no matter what, I have to pay the same amount in interest over the life of the loan??? Even if I pay off extra every month on the principal??
4 weeks ago - 4 answers
Best Answer
Chosen by Asker
When you take out a mortgage, the first few years worth of payments cover mostly interest charges that have been amortized over the life of that loan. As the loan gets older, the amount you pay on principal grows. Your best option is to obtain a 30 year fixed rate loan and pay it off at the 15 year rate, if you can afford it. You can't get a refund on interest you've already paid, but you can save thousands on actual payment of the interest. Confusing, I know.
by Cheryl G
4 weeks ago
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Other Answers
Not necessarily. You can only be refunded for prepaid insurance, points or something else based on the lifetime of the loan, and it has to be in your contract. Some loans are written to penalize you for paying off early. ARMs are famous for this.
by Liberal AssKicker- 4 weeks ago
No. If you pay extra every month, that is prepayment of the principal. You will pay the loan off sooner and thus pay less total interest than if you paid normal payments for the entire life of the loan.
by jlf- 4 weeks ago
First check your loan document to make sure that your loan does not specify a prepayment penalty. Some loans do not have any prepayment penalty, others have a prepayment penalty over a certain amount, and others have a prepayment penalty for only the first few years of a loan. If your loan does not have a prepayment penalty for the amount of the extra payments that you want to make, use the following calculator to determine the interest that will be saved. First enter the loan amount, term of the loan, and the interest rate. Then click on "Show/Recalculate Amortization Table" and check the total interest paid in the last entry of the table. Then add extra payments and click again. www ... You will see that the interest paid will be reduced as you make extra payments.
by Mike- 4 weeks ago