Question:

Is making large prepayment of a mortgage principal enough to get rid of mortgage debt fast?

Answer:

Yes, it is. Especially in the first years of the loan any large prepayment of a mortgage principal, if not incurring prepayment charges, can save you years and thousands of interest on the loan.

If you can afford making large prepayments to the home loan principal several times during the term of the loan, you are effectively reducing the loan amount that earns interest. Thus, your monthly mortgage payment automatically will apply to more principal than it was scheduled, and your mortgage term is additionally reduced, thus reducing the interest cost of the loan.

Large mortgage loan principal prepayments are the most effective way to reduce the mortgage term and interest cost (IC).

Making large prepayments within the annual prepay limit set by the lender is much more effective than other accelerated payment plans (such as biweekly payment, or making additional monthly payments to the principal on a regular basis).

If you run a comparison between making one single extra monthly mortgage prepayment of principal a year you will find out that the loan will amortize faster than if you made monthly prepayments of 1/12 of the annual prepayment amount.

Also, lenders usually allow that up to 20% of the original mortgage loan amount is prepaid in any year of the loan. If you are able to make 2 full additional monthly payments of mortgage principal and interest every year on a 30-year loan you are effectively cutting more than 10 years off the mortgage life.

Of course, there is always the question should I be investing this money somewhere else, but if you simply want to be free of mortgage debt sooner, large annual installments are the quickest way.

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