How to calculate home loan principal prepayment and how it affects my mortgage term?


There is an increasing number of borrowers who are interested in mortgage principal prepayment. It is interesting to know that even small extra amounts made on a monthly basis can add up and effectively reduce the term of the mortgage loan.

$25 per month extra principal prepayment can reduce the mortgage term with 1.5 years.

If you have a $200,000 mortgage at 6% for 30 years and you pay additional $25 per month, your mortgage term will be reduced roughly with 1 year and 7 months and you will save approximately $15,000 from interest.

Imagine that you make $100 extra principal payment every month. This time the results are $49K interest savings and 5 years and 5 months shorter loan.

Lenders usually allow home loan principal prepayment of up to 20%.

If you are keen on repaying your mortgage loan as fast as possible, you will probably be allowed to pay up to 20% of the original loan amount in any given year of the loan term.

If you would like to prepay your mortgage but cannot afford large monthly and yearly principal prepayments, then you should know that any extra amounts to the principal can help pay off early your loan, no matter how small they are.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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