Accelerated Payments
A term associated with making additional unscheduled payments on a loan at predetermined, or random intervals. Making additional unscheduled payments reduces the principal balance of the loan, meaning that more principal and less interest is paid off in subsequent payments. Making accelerated payments will lead to the early pay-off of a loan.
Investopedia Says:
Most loans have an amortization schedule that defines how much principal and interest will be paid with each scheduled payment, so that the loan will be paid-off at the end of an established term.
Also, the amount of interest paid with each payment is a function of the remaining principal balance of the loan at that time. The higher the rate of interest on a loan, the more beneficial it can be to make accelerated payments. The faster the borrower applies accelerated payments toward the principal balance of a loan, the more interest that is saved.
Related Links:
We explain the calculation and payment process as well as the amortization schedule of home loans. Understanding the Mortgage Payment Structure
We walk through the steps needed to secure the best loan to finance the purchase of your home. Understanding Your Mortgage
Learn how the various reasons for doing it can mean the difference between financial prudence and ruin. Mortgages: The ABCs Of Refinancing
