How would making lump sum payments affect my mortgage?
Just like increasing the frequency of your payments and taking advantage of your prepayment privileges, making lump sum payments can help you pay down your mortgage faster and save you a significant amount of interest.
If you find you have extra money floating around and don’t know what to do with it, put it towards your mortgage!
Let’s compare how much you could potentially save by making one lump sum payment of $5000 on a $200,000 mortgage with a 5-year fixed rate term, a rate of 5.39%, and an amortization of 25 years.
If you were to put $5,000 towards your mortgage one year, you could reduce your amortization from 25 years to 23 years and 10 months, and save $12,393.74 in interest. If you were to double that, and put $10,000 towards your mortgage, your effective amortization would shorten to 22 years and 8 months and you’d save $23,743.29 in interest!
Most lenders will allow you to pay between 10% and 20% of your original principal amount per year without incurring a prepayment penalty, depending on the mortgage product you have. It’s recommended that you refer back to your original mortgage documentation.
First Foundation would be happy to review your prepayment privileges with you.
Check out Tip 5. Perform Upgrades or Regular Maintenance on your Home
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