One thing you need to understand about prepaying on your mortgage is once the money is sent in and applied to your loan balance, it's gone. Prepaying an extra month in June doesn't mean you can skip a payment in December. Va. Even credit card debt secured by home equity should be paid off before mortgage prepayment because equity lines generally have a higher interest rate than first home mortgages, he says. In addition to higher interest rates on most consumer debt, the interest expense for such loans is generally not deductible, Rose adds. The mortgage interest writeoff is one of the last that's available to most folks.
Strategies abound for figuring out the correct amount and method to prepay.
Make a 13th payment each year. At some point during the year, make an extra payment and the entire amount can be credited toward principal reduction. Increase your monthly payment by one-twelfth of your regular payment. Again, this equals out to an extra payment per year, but lets you spread the cash impact out over the course of twelve months instead of having to come up with one extra payment at one time. Make the regular mortgage payment plus next month's principal every single month, suggests Freddie Mac's Hemschoot.