Most Laguna Niguel Realtors often say a mortgage is one of the biggest single debts you’re likely to willingly to embark on. As a result, being able to properly manage your mortgage is very crucial. With so many options when it comes to loans, repayment and refinancing, it can all get a bit complex. One point specifically is that you might hear a lot of talk about prepaying your mortgage.

Should you prepay your mortgage? Should you focus on other things first? Before rushing into prepayment, make sure you have all of the information first. Our Laguna Niguel Real Estate Agents will generally begin by looking at exactly what mortgage prepayment is and how it actually works.

What Is Mortgage Prepayment?

As the name suggest, most Laguna Niguel Realtors will tell you that mortgage prepayment is the act of paying some or all of your mortgage principal prior to it being actually due. This can take an assortment of forms, from paying a higher amount than the actual payment that’s due each month to making additional payments in months where you have money to spare. Some homeowners even make a single large payment every year after getting a tax return.

Regardless of the specific form that prepayment takes, the final result is always generally the same: More of your outstanding mortgage balance gets paid off, resulting in lowering both the amount that you still owe and the amount that interest can be applied to.

What Are the Benefits of Prepaying?

Our Laguna Niguel Realtors say there are several benefits to prepaying your mortgage, regardless of how often the payments are completed. Think about the following and how they might apply to your mortgage situation:

  • Faster repayment of the mortgage loan
  • Decreased cost of the mortgage over time
  • Equity is accrued at a quicker rate
  • Prepayment reduces principal, making it easier to qualify for refinancing

Essentially, prepayment gives you more control over your loan and helps you to save money, build equity and pay off the loan faster. Because you’re paying it down at a much faster rate, our Laguna Niguel Real Estate Agents say you’ll likely have an easier time refinancing for a better interest rate and loan terms down the road as well.

And since the prepayment is generally an option, our Laguna Niguel Real Estate Agents say you can always skip prepayments and simply pay the monthly payment due if money is a concern. As a result of this, a handful of individuals choose to incorporate prepayment plans into their overall preparations for retirement.

Are There Any Downsides At All?

While there are definitely benefits to prepaying your mortgage, there are potential downsides as well. Some mortgages, more then ever, those with adjustable rates, are designed to not give opportunity to prepayments; if you attempt to prepay on the mortgage, this can easily trigger a penalty fee.

Additionally, our Laguna Niguel Real Estate Agents say some lenders only accept prepayments in specific forms and will apply any other money received as an early payment against the next month (which means that the money will go toward interest and principal and not just your principal loan balance.)

Trying to prepay when you have substantial debt elsewhere or don’t have a safety net put together for yourself isn’t typically a great idea, either; your mortgage most likely has a lower interest rate than most if not all of your other debts, so you may be better off paying them off and building up savings and retirement funds prior to starting to worry about prepaying a mortgage.

Should You Prepay Your Mortgage?

Whether or not you should prepay your mortgage depends on a variety of factors. You should think about the type of mortgage you have, how much your monthly mortgage payments are and what your interest rate looks like. Furthermore, our Laguna Niguel Real Estate Agents say you should also take a look at your overall finances and how well prepared you are for emergencies and retirement; it’s possible that your money would be better off going elsewhere at the current moment.

Even if prepayments seem reasonable, make sure that your lender accepts prepayments without penalty and that you know how they prefer to receive prepayments. Those additional payments won’t do much good if your lender simply applies them against interest or charges you a penalty fee because prepayments aren’t allowed by your loan.