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Originally published Friday, May 18, 2012 at 8:00 PM

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Two easy ways to pay your mortgage off early

Borrowers who want to send in extra money don't need to call the lender or loan servicer ahead of time. But they do need to say they want the money applied to principal and not to the next scheduled payment.

bankrate.com

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A lot of homeowners want to pay off their mortgages before the end of the loan term. This is especially true for borrowers who want to repay their home loans before retirement. There are a number of ways to accomplish a mortgage payoff.

The two easiest ways to put more money toward a mortgage are to set up automatic payments from a bank account or use the lender's website, explains Jerald Banwart, senior vice president of customer operations at Wells Fargo Home Mortgage in Des Moines, Iowa.

Automatic payments can be made monthly, bimonthly or biweekly to match the borrower's employment pay periods, if that's the borrower's choice.

Extra money can also be paid in other ways. Banwart says borrowers can add an additional sum to a scheduled payment, mail in an extra check between payments, call the bank's customer-service telephone number, or even walk into a branch and arrange the transaction in person with a teller.

Technically, what most homeowners think of as an extra payment isn't really a payment because it's not one of the scheduled installments. Rather, it's extra money applied to principal, called "curtailment" in bank parlance.

Borrowers generally can apply extra funds to principal as long as their loan is current, meaning all the scheduled payments are up to date, adds Vicki Parry, assistant vice president of mortgage and equity servicing at Navy Federal Credit Union in Vienna, Va.

If a prior payment is late, has been missed, or the loan is delinquent, the extra funds must be applied to make up that difference before additional principal can be paid.

It's different for an escrow or impound account used for property taxes and homeowners insurance. Banwart says a shortfall there can be paid in a lump sum or spread over a number of future payments, but it needn't be made up in full before additional sums can be applied to principal.

Borrowers who want to send in extra money don't need to call the lender or loan servicer ahead of time.

That said, communication is crucial to ensure the additional funds are applied to principal and not to the next scheduled payment.

"As long as you have a way of telling us either via a coupon or online or through the branch, you can be assured it will be done correctly," Banwart says. "It's when you just send in a check and don't say what to do that issues can arise. We're doing our best to guess what you wanted."

Two situations likely to cause confusion: The borrower wants to pay an extra amount exactly equal to the scheduled payment, or the borrower wants to pay an extra amount right before the next scheduled payment is due.

Borrowers who want to apply a relatively large extra sum to their principal — perhaps because they've received an inheritance, bonus or other windfall — can do so, but a few cautions are in order. Some lenders limit the amount that can be paid online to protect against fraud or a typographical error. Wells Fargo, for instance, caps online principal curtailment to $99,999 per transaction, in part to guard against customers accidentally trying to pay $100,000 instead of $10,000.

Another caveat is that the additional money can't equal or exceed the loan balance, according to Hugh Suhr, a spokesman for SunTrust Mortgage in Atlanta. A loan-payoff figure is a moving target because of interest calculations, and is best discussed with the bank in advance.

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