Professionals in the home finance field often dispute the positive and negative aspects of prepaying a mortgage. As with many things in the finance world, mortgage prepayment is directly affected by ones personal situation. Everything from the type of mortgage you currently have, current interest rates, and alternate uses for the prepayment money must be considered.

A good place to start when deciding whether to prepay is your current mortgage company. Find out whether or not there is a penalty associated with prepayment. Depending on the amount of a penalty, you may find that prepayment is not worth it. Penalties are not as common as they used to be as lenders today are seeing advantages to getting your money as soon as possible. If you find that your mortgage does not have a prepayment penalty, check for any special prepayment rules that may effect how and when you can make payments. Whatever you find, make sure to get the information you find in writing, for future reference.

If you determine that prepayment is a feasible option with your current loan, you may want to begin considering how prepayment will effect your financial situation overall. For example, many individuals, in a rush to relieve themselves of the burden of a home mortgage, prepay all they possibly can. Although you will save more interest, you may find yourself unable to pay for medical or other emergencies because all your money is tied up in your home.

Consider where the prepayment money is coming from or what else it could go towards. If it is invested where it is gaining interest greater than your mortgage interest rate, you are probably better off leaving it there and making minimum payments on your mortgage while maximizing your mortgage interest tax write-off. If you have an automobile or personal loan, statistically these loans are costing you more in interest and it would be better for you to use any extra money to pay them off instead of paying on your home. The same is the case with credit card debt. Finally, keep in mind that your home mortgage is tax deductible while other loans are not.

If prepayment still makes sense to you, there are many options that can significantly reduce your total payment by only prepaying a little at a time. These include paying bi-monthly instead of monthly payments, paying a little extra each month, one-time extra payments, or even partial and full curtailment (explanation follows). Consider these options and the savings that they promote.

A $100,000 loan over 30 years at 8% will result in a required monthly payment of $733.76. At the end of the 30 years, the total amount paid will be $264,155.25, $164,155.25 of which is in interest. If you chose an option to pay bi-monthly instead of monthly (an option that should be offered to you by most lenders) you will be making 26 payments during the year, the equivalent of 13 monthly payments. By paying this one extra month every year over the 30 years of the loan, you will save $47,630. Yet another option is to pay a little extra each month along with your required payment. If you were to add $100 a month to the payments on your 30-year mortgage, you would save $62,460.30 over the life of the loan. If consistent extra payments are not an option, it is surprising how much you can save by only occasional extra payments. If you were to pay just one extra $100 payment at one time during your loan, you would save $984 in the long run. A final option, if you have a windfall, is making either a full or partial curtailment of your loan by paying off a substantial amount of your loan or the entire balance. Obviously, this is a great option if you have the ability. You can avoid large amounts of interest that would otherwise be accrued.

There are many factors linked to whether you should prepay your loan or not. It is important to investigate all of the possible benefits and consequences before going ahead with any prepayment. As you can see by these examples, often prepaying even small amounts of your loan can be very beneficial in the long run. If you are able to afford it, prepayment of your mortgage may be a wise option to consider.