honey, i shrunk the mortgage! how to correctly pre-pay your mortgage, and save the interest!
TRANSCRIPT
Honey,Honey, I shrunk the I shrunk the mortgage!mortgage!
How to correctly pre-pay your mortgage, and save the interest!
The Way We’ve Done ItThe 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 worksThe way a mortgage works
The way a mortgage really worksThe way a mortgage really works
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
(example of 5 years paid)
The way a mortgage worksThe 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 worksThe way a mortgage works
5 prepayments of $1,100.65 for 5 years =$5,503.25
360 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 worksThe way a mortgage works
Wouldn’t it be better to do this?
And not pay this?
The way a mortgage worksThe way a mortgage works
1 prepayment per month for a total of $9237.10 (average $153.95/mo)
360 regular payments less 60 regular payments less 60 prepayments = 240 remaining payments
SAVING $56,802.30 in interest
After 5 years
The way a mortgage worksThe way a mortgage works
1 100.65 1000 150000 1100.65
2 101.32 999.33 149899.35 36550 101.32
3 102 998.65 149798.03 1100.65
4 102.68 997.97 149593.35 36581 102.68
5 103.36 997.29 149489.99 1100.65
6 104.05 996.6 149385.94 36610 104.05
7 104.74 995.91 149281.2 1100.65
8 105.44 995.21 149175.76 36641 105.44
9 106.14 994.51 149069.62 1100.65
10 106.85 993.8 148962.77 36671 106.85
11 107.56 993.09 148855.21 1100.65
12 108.28 992.37 148746.93 36702 108.28
Date Paid Monthly Total
LOAN PAYMENT SCHEDULE with Prepayment Example$150,000 - 8% - 30 Years - $1,100.65/Month
Pmt # Principal Interest Balance
The way a mortgage worksThe way a mortgage works
13 109 991.65 148637.93 1100.65
14 109.73 990.92 148528.2 36732 109.73
15 110.46 990.19 148417.74 1100.65
16 111.2 989.45 148306.54 36763 111.2
17 111.94 988.71 148194.6 1100.65
18 112.6 987.96 148081.91 36794 112.6
19 113.44 987.21 147968.47 1100.65
20 114.19 986.46 147854.28 36824 114.19
21 114.95 985.7 147739.33 1100.65
22 115.72 984.93 147623.61 36855 115.72
23 116.49 984.16 147507.12 1100.65
24 117.27 983.38 147389.85 36885 117.27
Date Paid Monthly Total
LOAN PAYMENT SCHEDULE (Continued)$150,000 - 8% - 30 Years - $1,100.65/Month
Pmt # Principal Interest Balance
Remember, this is why it worksRemember, this is why it works
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
(example of 5 years paid)
And here is how to do it!And here is how to do it!
The Correct Way to Prepay a The Correct Way to Prepay a MortgageMortgage
Get a copy of the lender’s amortization schedule.Make your regular payment 1st!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 The Correct Way to Prepay a MortgageMortgage
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 NoticeSample Prepayment NoticeExact 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, Honey, that’s how you shrink the that’s how you shrink the
mortgage!mortgage!