Shawn saves his money and decides to make a prepayment in Year 18. Shawn decides that he make a pre-payment of $10,000 to his normal payment. Look what happens when he makes a prepayment of $10,000.
As you can see, in this example, Shawn only saves $11,051. That’s an amazing investment! Shawn just doubled his money. But compared to the previous example, only doubling your money pales in comparison. As you can see:
- The Principal curve on the graph shifts left.
- The Interest curve on the graph shifts left.
- Shawn saves 1.13 years of mortgage payments
- Shawn saves $11,051 in Interest
Saving $11,051 is amazing! But somehow isn’t as exciting as saving $48k!
Shawn starts thinking a little more. Let’s dig a little deeper.