Homebuyer Education Mini Lesson

Making Prepayments on Your Principal Can
Save Money on Interest!

Prepayment Chart
This table illustrates how both the total amount of interest paid and the length of time it takes to pay off a mortgage of $175,000 at 5.5% interest can be significantly reduced by making extra payments toward the principal of that mortgage. This is referred to as "prepayment." For example:

$175,000 Mortgage

Here's another way to look at your savings

Beware of companies that charge a fee for their assistance with cutting your interest payments through biweekly payments. By paying biweekly, you'll make 26 half payments, or 13 full payments each year–one more full payment than you would make by sending the lender one monthly payment in order to pay down your principal balance more quickly. However, some companies charge a fee to set up this service, or add a fee to your biweekly payments. Evaluate whether the benefits of this service will outweigh the added costs, and be sure to read the fine print to understand the terms of any agreement that changes the payment of your mortgage loan.

A No-Added-Cost Option Available to You–Instead of the option above, you can contact your lender or loan servicer on your own and send in prepayments as it is convenient for you, or inquire about whether they have a biweekly payment plan without having to hire the services of any outside company to arrange that for you.