I have a loan with a term of 15 years and a fixed rate of 10 years. I would like to be able to pay it in 10 years. Which is better, making an advanced payment every month or annually, assuming that the monthly payment times 12 is equal the the annual payment?

1 Answer 1


Generally: the earlier you reduce your principal, the less interest you pay, as you stop paying interest (and compounded interest) on that amount at that very moment.

E.g., paying $1.000 at the beginning of each month for a 5% mortgage saves you $270 in interests compared to paying $12.000 at the end of the year. Because for the first $1.000, you don't pay interest for the whole year, the 2nd $1.000 saves the interest from february to the end of the year, and so on.

Nevertheless, you have to check your conditions: if they charge you a fixed fee for every advanced payment, you need to make sure it's still worth it. In the example above, a fixed fee of $25 per advanced payment will cost more than the $270 saved. Or you may only be allowed to do a limited amount of payments, or only a limited amount of free payments.

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