Question:

How does partial prepayment affect my mortgage loan?

Answer:

While paying off early in full may be associated with a prepayment penalty, partial prepayment of mortgage debt is usually allowed by most lenders and without penalization.

Partial prepayment can take many forms:

  • utilizing an accelerated payment plan that leads to early prepayment of the loan;
  • making additional principal payments on a monthly or yearly basis that also leads to early pay off.

Should you be paying off early your mortgage loan if you can afford it?

It depends on whether you have higher return on investments other than a mortgage. Mortgages have a yield of return equal to their interest rate minus prepayment penalties and taxes. If you have other investment vehicles with higher level of return, you might try using your cash flow to maximize your other investment return.

However, monthly or annually partial prepayments of the mortgage loan are highly recommended. The monthly mortgage payment will remain the same but your loan will amortize much sooner and will save you tens of thousands of interest.

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