What Are the Advantages of Mortgage Prepayment?

Mortgage prepayment is known to offer a number of advantages. Mortgage is generally the biggest single loan that a borrower has taken out in his lifetime. If one manages to prepay the debt generated from mortgage, the three primary benefits he will enjoy are cutting down the term, reducing overall expenditures related to interest and increasing equity accumulation.

In case of  a thirty-year mortgage on fixed rates, if the borrower keeps on making an additional monthly payment every year, he will successfully reduce the duration of mortgage by 7 years. Similarly, on making two additional monthly payments for mortgage every year, he will end up reducing the mortgage term by close to 15 years i.e. almost half of the actual mortgage period.

Any borrower needs to spend probably the biggest amount in his lifetime as interest of mortgage. For instance borrowers with thirty-year fixed mortgages of $100,000 against 5% interest will have to pay a total sum of $93,255.78 as interest. By making an extra monthly payment of mortgage every year, the interest expense can be brought down to $76,077.49. This means the borrower will be successful in saving as much as $17,178.29.

The third most prominent advantage offered by mortgage prepayment is increase in equity accumulation. While buying a home, the borrower needs to pay a certain amount as down payment. This amount becomes equity of the residence. The percentage of the total value of the home paid as down payment is equal to the percentage of the home owned by the borrower free of any debt. Faster mortgage repayment will result in faster increase in the home equity of the borrower.

Faster repayment of debt also makes a person stress-free and free from any liabilities at least for a short while.