Should I make partial pre-payments on an actuarial loan?
The contract is not very clear. As much as I can understand it will still help if you make part prepayments. In an Rule 78 or Actuarial method, the schedule is drawn up front and the break-up of interest and principal for each month is calculated ahead. At the beginning both the reducing balance method as well as Actuarial method will give the same schedule.  However in Actuarial method, if you make part prepayments, they get applied to the future principals, the interest are ignored. However the future interests are not reduced. Example: Say your schedule looks something like this; Monthly Payments say 100; Month | Principal | Interest 1 | 10 | 90 2 | 20 | 80 3 | 30 | 70 4 | 40 | 60 5 | 50 | 50 6 | 60 | 40 7 | 70 | 30 8 | 80 | 20 9 | 90 | 10 So lets say you have made 3 payments of 100, in the 4th month if you make 150 [in addition to 100], it would get applied to the principal of 4th, 5th and 6th month. So essentially you would save interest of 4th, 5th and 5th month. It would also reduce the total payments to 6. i.e. you will only have 7th, 8th, 9th due. The next payment you make of 100 will get applied to row 7. The disadvantage of this method over reducing balance is that the interest calculated for rows 7,8,9 don't change compared to reducing balance. However if you prepay in full, the unearned interest is calculated and returned as per the Actuarial Tables.
IMO this means one of two things: the bank thinks that 3 months from now, the interest rates it plans to offer will be lower than 1%; after 180 days, it will go up again. the bank needs more short-term cash than mid-term cash right now, so it offers you a better deal. In either case, it is unlikely that your 90 day intrest rate will be available 90 days from now, and most likely it will be below 1% unless the bank yet again needs short-term cash from its customers. With those proposed rates, I would go for half in 90 days and half in 270 days. Disclaimer: am no economist, just spent a lot of time the past year fretting over the same kind of questions.  Feel free to tell me where I'm wrong if you think I am. "I was afraid of this. If you are using 12 P/Y and 12 C/Y, then your interest rate should not be divided by 12. Also, you should use ""END"" as this means monthly payments are made at the end of the month - a usual default." You might try to refinance some of those loans. It sounds like you are serious about minimizing interest expense, if you think you will be able to pay those loans in full within  five years you might also try a loan that is fixed for five years before becoming variable.  If you do not think you can repay the loans in full before that time, you should probably stick with the fixed rates that you have. It may even be profitable to refinance those loans through another lender at the exact same fixed rate because it gets around their repayment tricks that effectively increase your interest on those two smaller loans. If you wait to pay it off until you are required to in order to avoid interest (the end of the 'grace period'), then you are receiving what's known as a 'float' - basically, you have some money earlier than you would otherwise.  Banks and other companies profit substantially from floats (such as when banks take your deposited check and put a seven day hold on it) by investing that money in money-making activities and not allowing you to use it until later.   As an individual, particularly if you're not a frequent investor, you typically benefit less than a bank would from a float, since you have less options for investing that money with a short turnaround.  Technically speaking it's sort of like you're getting a constant advance on your paycheck 21-40 days; so in that sense, you benefit because you get to have that stuff (television, food, whatever you're buying on credit) a month or so before you have to pay for it, and you get a month or so's benefit from it. So, yes, you get a small benefit from paying your bill when it's due and not prepaying.  Whether that benefit is worth the potential downsides (forgetting to pay and accruing interest) depends on your habits. Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules. I would recommend that you take out a loan large enough to cover both your Capex requirements AND give yourself a cash buffer.  Depending on the simulation and how aggressive you want/need to be (are you competing against other teams?), you may just want to leverage as much as you can and use high amounts of cash for all expenses and projects. If the best they can do is 1/8th of a percent for a 15 year term, you are best served by taking the 30 year term. Pay it down sooner if you can, but it's nice to have the flexibility if you have a month where things are tight. "We payed off our Mortgage early...at first in small extra payments to principal, and finally a lump sum.  Each extra payment to principal reduced the balance, and reduced every payment going forward.  I have, somewhere, an excel spreadsheet where I tracked this...  - =CUMIPMT((interestRate/12),term,pymtNumber,balance,balance,0) computed the interest payment due  - =currentPrincipal + CUMIPRINTresultAbove computed the monthly principal payment Occasionally I would update the month-ending Principal balance against what the mortgage company told me.  It was usually off by a little.   My mortgage company required me to specifically contact them for a payoff amount before I wrote the final check.   I've never heard of a mortgage where prepayment of all expected interest following the original schedule is required.  I would guess it is against federal (US) law.  Lets think about that for a moment...  out of ""interest"", I recently computed that for our 30 year loan at 6-5/8% on about 145, we payed a total of 106000 in interest.  That include a refi to 4-7/8 10-years in to a 15-year loan, and paying it off 20 years after the original loan was granted. As far as not paying all the theoretical interest due...  - If they get a fixed dollar amount of service interest back, there's no incentive to me to pay on-time.  I owe the same amount if I pay it today or if I pay it 6 months late, after I gambled the mortgage money and finally won.  (yea, I know they could write the mortgage to penalize me for paying late, but I'm ignoring that)  - if you were requried to pay off all the interest that might accrue, how could you ever sell your home, or refinance, for that matter?  When I refi'd, the new holder payed the old holder 98,000.  If the original holder had required prepayment of all the interest that would be accrued to the original schedule, the new mortgage would've been 200k.  It would just never be a good deal to buy a home if mortgages worked under that term. I have had a car loan that worked differently -- they pre-computed the total interest due and then divided it over the term of the loan equally.  I could pay off early and they stopped collecting interest." In the prior PMI discussions here, it's been stated that the bank is not obligated to remove PMI until the mortgage's natural amortization puts the debt at 78% LTV. So, paying in advance like this will not automatically remove the PMI.  Nor will a lump sum payment be certain to move the next payment ahead a year. If it's entered as a principal prepayment, the next month's payment is still due. In the world of coupon books, if you sent in a year's payments, you'd not benefit from the interest saved, in one year you'd owe what the amortization table tells you.  There's no free lunch when it comes to mortgages or finance in general. This is why we usually caution that one should not be cash poor the day after buying a house. Best to save 30%, put down 20%, and have a cushion after the closing. "The rate difference between your student loans and the historical yearly average growth in the S&P500 isn't large enough for me to play the ""pay minimums and invest the rest"" strategy.  If your loans were 2%, I might think about it. However, the 4% loans are guaranteed and mandatory expenses; discharging them even in bankruptcy is unlikely.  The quicker you pay them off, the sooner you won't have them hanging over your head in case of a ""financial setback"" (job loss, large expense uncovered by insurance, etc). (One good reason to pay the minimums, though, is to build up a $1K emergency fund.  When your debts are paid, then you can increase its size.)" It's not uncommon to have a small penalty if you pre-pay the mortgage in a short time.  After all, making the loan isn't free for the bank. But as Nathan says, if a bank is planning to try very hard to stop you from giving them money, there is probably a reason. Try to convince your wife: there is nothing inherently wrong with debt.  Like anything, too much can be bad for you, but when debt is deployed wisely -- that is almost always, when it is used to finance a capital asset (an asset that produces value) -- it can be a very good thing. Mostly to play devil's advocate, I will recommend something different than everybody else. If you can pay off the entire $3,000 balance and are torn between saving that money somewhere that will earn a return and paying it off now to be debt-free, why not a little of both? What if you pay half now and then save the other half and make a big payment at the end. Essentially that becomes two $1,500 payments: one now, one right before the 0% due date. To me, the half up-front significantly reduces the risk, but leaves some cash available to grow. "Tricky question.  Many car leasing companies like to quote payments by the week or twice a month to make the car sound cheaper to carry.  If the lease or loan is calculated such that interest accrues monthly ""not in advance"" then any payments made prior to the date on which the interest is calculated will reduce the balance and therefore the interest. However, many loans and leases are calculated at the beginning for the whole life of the agreement.  In that case, splitting each payment in half doesn't do anything to reduce the interest built in to the payments because the interest is calculated ""in advance""" Varying the amount to reflect income during the quarter is entirely legitimate -- consider someone like a salesman whose income is partly driven by commissions, and who therefore can't predict the total. The payments are quarterly precisely so you can base them on actual results. Having said that,  I suspect that as long as you show Good Intent they won't quibble if your estimate is off by a few percent. And they'll never complain if you overpay. So it may not be worth the effort to change the payment amount for that last quarter unless the income is very different. This depends in part on the bank holding your loan and the loan agreement.  Some loans will accept partial payments and apply them immediately; some will not accept partial payments at all, and some will accept the payment but hold the funds until the payment is at least your complete payment.  You should check your loan agreement to find out how the payment will be processed, as well as how it will be applied. It also is relevant how interest is calculated and accrued; if your interest is a daily rate, then you may save some money this way, but if it's a monthly rate then you wouldn't necessarily.  Either way you wouldn't really save very much money; in your particular case you'd be saving $0.15 per month (.025/24 = .001 semimonthly interest rate, $150 paid halfway through the month means you pay .001*150 less interest).  Is that $0.15 worth it?  Up to you I guess.  If you're paying that for 5 year loan, you'll end up ahead $9 at the end of it. Finally, there is a kind of program often offered to new mortgage holders where you pay every two weeks (like your paycheck) and thus 'pay down your mortgage faster by saving on interest', which is true, but it's because you make 26 half payments per year instead of 12 full (or 24 half) payments, not primarily because of particular savings on interest due to timing (and of course the program offerer has to make money somewhere!).  Paying an extra 8.33% each year is certainly a good way to pay off your loan faster, but it's not primarily due to the frequency of those payments.