Last week, a client asked me if she could pay extra towards her mortgage and, if yes, what the impact would be. The short answer is absolutely. None of the residential mortgages that RMC originates have prepayment penalties. That means you can pay a little or a lot extra towards the principal anytime. You could even pay the loan off the day after you close.

Mortgage Prepayment

The impact of prepaying principal is staggering. For example, this client was getting a mortgage of $500,000 at a 6.5% 30-year fixed. She wanted to pay one extra payment of $3160 (her principal and interest) a year. We calculated that would save her around $140,000 of interest over the life of the loan and shorten the term of the loan to 24 years. That is a huge savings.

Payment Options

My client got an annual bonus, so she wanted to pay the extra principal once a year. Other clients have told me they have decided to round up their payment, so instead of paying $3160 maybe they pay $3500. Some people find it easier to pay half their mortgage biweekly to coincide with their paycheck, which has a similar impact to the first example of one extra payment a year. If you have questions about mortgage prepayment or want me to look at numbers for you, please contact me.