Q: I own a home. In 2004, I refinanced and got a $200,000, 15-year loan at 5.25 percent. For one year I paid an extra $500 per month. I now owe $125,000. I am still paying one-twelfth of the payment each month.
I am not sure how many years I have left at this point due to all of my prepayments. I want to pay the house off in the next five years. How much do I need to add to my monthly payment in order to pay off the house in that time frame? Also, do lenders allow bi-weekly programs? I just send in payments twice a month.
Thank you very much.
A: You haven’t quite provided me with all of the information I need to calculate exactly what you have to do to pay off your loan in the next five years, but I’ve pulled some general numbers that I think will help you figure out what’s going on.
First, congratulations on prepaying your mortgage. You’re doing a great job of building equity in your home. If you prepaid an extra $500 per month on your $200,000 loan at 5.25 percent, it would take you four years to pay down the balance to $125,000. Since you’re about four years into your loan term, I’m guessing that you’ve actually been paying $500 per month all this time, not just for one year. That’s how you’d get to about $125,000.
If you only prepaid the loan for one year, I’m wondering if you made any extra prepayments on top of that amount. Going forward, if you paid the $500 monthly plus $1,607 per year, that works out to $634 per month. At that rate, you’d pay off your loan in around nine and a half years, depending on when you made the extra $1,607 payment (I calculated it as if you added an extra $634 to each monthly payment, although if you paid the $1,607 in January of each year, you’d pay off your loan slightly faster).
Since you got your loan in 2004, you’d pay it off in 2013, or about 5 years from now.
If you paid a total of $750 extra per month, you’d pay off your loan about six months faster. If you upped your monthly pre-payment to $1,000, you’d pay off your loan in about 8 years total.
When it comes to bi-weekly payments, many lenders will charge you to set that up. But you can make any prepayments yourself, without paying a fee.
There are accountants and others who might be able to audit your mortgage account. They would look at all of your prepayments and calculate for you with greater specificity what you would need to pay going forward in order to pay off your loan when you want.
Good luck in reaching your goal.
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