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Old 05-21-2015, 09:13 AM
 
Location: Denver CO
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Make sure to read the contract carefully to confirm that there is no pre-payment penalty. It's in the boilerplate language and it will be marked off one way or the other. As noted, pre-payment penalties are not the norm these days but it's always good to double check.

My lender just sent me a notice saying that if I pay extra and don't tell me specifically how to allocate it, they will apply it to principal (what I want anyway) so it seems like they don't have any concerns about it.
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Old 05-23-2015, 12:23 AM
 
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You should always ask if there are any pre-payment penalties and make them show you the contract that confirms what they are saying.
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Old 05-23-2015, 03:29 AM
 
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Quote:
Originally Posted by bighusker View Post
You should always ask if there are any pre-payment penalties and make them show you the contract that confirms what they are saying.
The FHA forbids issuing a fee for prepayment of an FHA home loan. But I will certainly ask to make sure. There is some rule about not paying on the first of the month the pre payment that might add interest.
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Old 05-23-2015, 05:33 AM
 
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Yes but read the below site and your contract.


Should You Pay Off Your Mortgage Early? - Next Avenue
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Old 05-23-2015, 07:34 AM
 
Location: Boise, ID
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Almost every mortgage gets paid off early. Very few people these days buy their first house and stay in it until the mortgage is paid off. Most people buy a house, live there a few years and sell it. When they sell it, the mortgage is paid off early. Financially, to the lender, this isn't any different than if you decided to write a check for the balance due.

Lenders like people to continue to pay interest forever, but I don't think they "care" if the mortgage is paid off early.

I haven't seen a mortgage loan with a prepayment penalty for a while, but definitely confirm, just in case.
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Old 05-23-2015, 08:28 AM
 
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Quote:
Originally Posted by Lacerta View Post

Lenders like people to continue to pay interest forever, but I don't think they "care" if the mortgage is paid off early.

I haven't seen a mortgage loan with a prepayment penalty for a while, but definitely confirm, just in case.
If they like you to pay interest forever paying it off early means they earn less interest.

The only thing I read that can happen is if you don't make the extra payment on the 1st you can be charged interest, but I read somewhere else that you can even send in as little as $50 and have it applied to your principal and that payments are normally applied to principal unless otherwise stated.
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Old 05-24-2015, 08:28 AM
 
Location: Boise, ID
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Quote:
Originally Posted by so954 View Post
If they like you to pay interest forever paying it off early means they earn less interest.
Right, which is why I said that. But they are big corporations. They don't "care" whether you pay it off early or not. They expect that most people will, in one form or another.


Quote:
The only thing I read that can happen is if you don't make the extra payment on the 1st you can be charged interest, but I read somewhere else that you can even send in as little as $50 and have it applied to your principal and that payments are normally applied to principal unless otherwise stated.
It depends on the loan. My current loan is non-amortized, and if I send in extra payments, it moves my "next due" date out further, like a car loan.

Some loans automatically apply any overage to your escrow account if not specified.

Typically, on an amortized loan, they don't take interest out of your payment first (car loans do this, and my current loan would probably do this as well). On a normal mortgage, like most people have, your payment is always the same amount. How much goes to interest and how much goes to principal is determined by the amount of outstanding principal on that exact date. So any payments to principal before that date reduce the balance. They would not take accrued interest out of your "extra" payment.

And there is no $50 minimum to make extra payments (unless this is a bank rule). I used to just round up to the nearest $5 increment when making my payment. At one point, I was paying an extra $0.42 every month.
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