Everything else is details. Prepare the way Borrowers deciding to take the plunge should steer clear of costly plans touted as alternatives to doing it on their own, consumer advocates say. Once enrolled, a person either mails biweekly payments to the company, or has them automatically deducted from an account. First, contact the lender to find out how to ensure the money ends up in the right place. Others may have to send separate checks each month, or mark off special boxes on their statements.
Prepayment penalties can be another trip-up.
They typically kick in only when a borrower refinances, but some can activate if a person pays more than 20 percent of the loan's principal during any one year early in the loan, according to the Mortgage Bankers Association of America. Other options For all of its ease, however, prepaying isn't always a consumer's best bet. That return equals their mortgage interest rate, minus any benefit from the tax deduction they would have been entitled to because they paid that interest. For example, a person with a 7 percent interest rate and 28 percent federal tax rate earns about 5 percent after factoring in the tax deduction. That's less than the stock market's historical average return of 8 percent to 10 percent, and far below the numbers seen of late.