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frankmcdowell2000 · Joined: 07 Sep 2009 Posts: 57 0.00 Dollars($)

What are the benefits of paying down my principal with a lump sum?

jveenstra · Posted: Thu Oct 01, 2009 9:05 am Post subject: Lump Sum

You shorten the term of the loan, but, your monthly payments remain the same if you have a fixed rate mortgage.

Once you give the money to the bank, the bank has it and you no longer have it. Nothing wrong with that, except, if you need the money in an emergency, you no longer have it.

Another plan might be, keep the money in a savings account. Continue to make payments on the loan. When the balance is such that you have enough money to pay the bank entirely, then give them the money and you have no mortgage anymore.

If you want to make your monthly payments smaller, you can refinance to a lower mortgage amount.
Some lenders may do a loan modification to make your payments smaller when you pay down a lump sum. You need to check with the lender if they allow such a thing.

If you have an adjustable rate mortgage, your payment will adjust lower based on the new balance when the ARM adjustment date arrives. The new payment will be based on the new balance and the new rate.

eric1 · Posted: Thu Oct 01, 2009 9:19 am Post subject:

If you have excess funds, you can also use it to buy an investment property. Between the tax write offs, increase in value over time, etc....you will be building wealth.

Guest

One thing to look out for, Frank, is a potential trigger on any pre-payment penalty that may exist in your mortgage. It's dependent upon the individual terms of yours obviously, but from what I've read of mortgage contracts over the years, where pre-payment penalties exist there is a percentage threshold that you can not exceed without triggering the PPP. In some cases it's 20%, some 15%, some 30% if I remember correctly. IT all depends on the terms of your individual mortgage.

stevecomish · Joined: 16 Sep 2009 Posts: 48 0.08 Dollars($)

eric. you are right.
one has to be wise investor these days.

instead of saving just interest portion of mortgae, one should always do a proper market reseach.

in present situation, when market is at low, it is more relevent. market has already started showing good sign.

annyb27 · Joined: 07 Jul 2009 Posts: 144 -1.08 Dollars($)

As any one suggest the direct benefit will be a reduction in your term. As you are paying in lump sum amount the schedule the mortgage is reducing. So effect of it is reduction in monthly payment. so loan amount can be covered as principle amount.

Also second important benefit is reduction in interest amount as you paid in lumpsum.As you are repaying the principle amount in faster rate so the interest will be less as compared to original loan amount.

Its always advisibale to clear the home from loan so prepayment is good idea to clear loan in faster rate.

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