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The Watercooler
paying off student loans early
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<blockquote data-quote="svengandhi" data-source="post: 618342" data-attributes="member: 3493"><p>Assuming his loan doesn't have a prepayment penalty, he can pay ahead but he MUST specify that's it is to be applied to principal. If you don't do that, the lender will apply the extra payment to the next month's interest and then send a lower payment coupon for the next month. It's better to reduce the principal because that helps reduce the interest in the long run by shortening the loan period. I always round up my mortgage to the next hundred and say it's for principal. Once, the bank didn't record it properly so I had to go back and have them correct it. When I had my home equity, we came into a small inheritance and made a lump sum payment which was supposed to go towards principal. Instead, I got a notice that I didn't owe a payment for x months. When I called the bank, I found out they had applied it to interest. I made them change it.</p><p></p><p>There might be a link on the bank site which will allow him to check how his payments apply to the amortization and he can see how the term will decrease. I've had my loan term shortened by about 7 months so far.</p></blockquote><p></p>
[QUOTE="svengandhi, post: 618342, member: 3493"] Assuming his loan doesn't have a prepayment penalty, he can pay ahead but he MUST specify that's it is to be applied to principal. If you don't do that, the lender will apply the extra payment to the next month's interest and then send a lower payment coupon for the next month. It's better to reduce the principal because that helps reduce the interest in the long run by shortening the loan period. I always round up my mortgage to the next hundred and say it's for principal. Once, the bank didn't record it properly so I had to go back and have them correct it. When I had my home equity, we came into a small inheritance and made a lump sum payment which was supposed to go towards principal. Instead, I got a notice that I didn't owe a payment for x months. When I called the bank, I found out they had applied it to interest. I made them change it. There might be a link on the bank site which will allow him to check how his payments apply to the amortization and he can see how the term will decrease. I've had my loan term shortened by about 7 months so far. [/QUOTE]
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paying off student loans early
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