When borrowing a large amount of money for a house or a car, make sure you get a loan with no prepayment penalty. Then you should always pay more than the minimum payment. An additional 50 dollars a month can shave years off a mortgage or car loan.
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It will also eliminate a lot of interest money on your mortgage if you instruct them to apply the extra money on the principle only. My friend just paid off a 30 year mortgage on her double wide mobile home in 7 years and saved $83,000 in interest.
When we had our home mortgage, we had this fee (no choice), but ours only amounted to $8.00. We still paid our mortgage off early, since the $8.00 was a drop in the hat compared to what we saved. I understand that this penalty is often extremely high.
We have a car loan thru toyota and they wont let us pay down on it. When I pay extra they just mark it as credit and lower the payment for next month. I called and asked about it and they said they dont have a spot to prepay extra. Go figure. I hate that.
I disagree in some circumstances with prepaying your mortgage. Currently, the average 30 yr mortgage rates are about 6-6.5%.
Historically, the return on stocks have been about 10% annually. Additionally, since you get to deduct interest you pay on your mortgage, the actual rate of your mortgage would be about 4.6-5% [assuming a 25% tax bracket].
If you have high interest rate CC's or/and high rates on your car, then pre-pay those off, otherwise invest the money.
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When we got our house set up, we have been paying $100 extra on the principal each month. Our 15 year loan will be paid off in 10 years (next year) This is what we have taught our son who just bought a house several months ago.
If you pay $50 more a month on your car loan, do you apply it towards principal or interest? Thanks.
Editor's Note: You can't pay ahead on interest. Put it on the principal.
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