Which is better for the homeowner? To pay extra on the loan every month or once a year pay a big chunk?

Question

Just curious! Which one would be more beneficial to the home owner (buyer)? To pay extra on the principal every month or to pay one large sum at the end of the calendar year?

Answer 1

If you do not have a prepayment penalty clause in your contract it's probably in your best interest to pay extra on the principal each month. Check your contract closely for a prepayment penalty clause. If you do have one of these clauses in your loan contract you need to contact your attorney and see if there's a little known law applicable. That law is that if your financial institution is sold to another financial institution then you may renegotiate the terms of your loan.

However, if you do not have a prepayment penalty clause and if you can pay a full principal payment each month you can actually pay off a 30 year mortgage in 15 years!

Even if you can't pay a full principal payment each month it's still better to pay your regular payment each month and as much as you can afford toward the principal since you will still pay off thel loan in a shorter time which means that you'll be paying less total interest.

Check out the figures using a financial calculator such as the one on www.cuna.org in the Consumer Information section.

For your convenience I've included the direct link to the financial calculators.

Good Luck!

Answer 2

well there was a study in an SFO magazine on this. But do whatever you want as for the paying down on the principal it doesn't really matter unless you do NOT have an early final payment fee. The study on it showed why just paying the amount on a 30 year fixed is the best route because you know how much money you need each month and you can be better prepared to handle any "suprises" that comes your way.

I agree with their assessment that you should save any "extra" especially since most online banks have a savings of 5% and the average apy on a 30 yr fixed is near 6% (pending on how good your credit is). So a 1% difference isn't that muuch. I would save and build on teh savings no need to pay it off early.

Answer 3

Go to Microsoft website below and download the Loan Calculator with Extra Payments and see for yourself. It is an awesome spreadsheet. Complete the top portion and play with the spreadsheet by showing monthly payments. Then elimate the extra monthly payments and enter just a yearly payment under column E on any line below Line 18.

Answer 4

its better to pay even a small amount of money sooner, rather than a large nut at the end of the year. for example a $100 every month rather than $1200 at the end of the year. You arent paying the interest on the first hundred for the next 11 mos. whereas you pay all the interest on that money if you wait 'til years end

Answer 5

i don't use puppy insurance. I extremely have a separate economic company account that I positioned money into each and each month and that i exploit for all my canines expenses purely, for Vet Care, severe high quality Holistic nutrition and all the different components they want. by technique of putting a definite quantity of money into that account each month, the money provides up and that is available any time i like it. i've got self assurance extra comfortable understanding that the money is there and that i don't might desire to hardship approximately how i'll pay for vet care or the rest. If an Emergency subject comes up with any of my canines, universal vet care, any attempting out, strategies or surgical procedures that would desire to be carried out, nutrition and all components, i be attentive to the money is there to pay for it.

Answer 6

Frequency of payment. Do a check using your financial calculator, and the frequency of payments wins out in the calculation of total interest.