Shawn from the book is a new homeowner. He finds himself with $10,000 in the bank. He has seen the value of paying off his mortgage, so he decides to make a prepayment of $10,000 in year 2 of owning his home.
Look what happens when Shawn makes a prepayment to his mortgage.
Shawn makes a prepayment towards his mortgage. Making a prepayment has immediate results.
- The Principal curve shifts left
- The Interest curve shifts left
- Shawn saves 3.13 years of payments
- Shawn saves $48,984 in interest
That is a pretty incredible return on investment! For only $10,000, Shawn saves $48,984. Guaranteed. It’s math, and it’s the laws of math!
Let’s look at another scenario.