Prepayment Interpretation for 30 Year P&I Note

3 Replies

I just came across a lien note with the following language “Prepayments will be applied to installments on the last maturing principal, and interest on that prepaid principal will immediately cease to accrue.”

I had a few people look at this and got 2 different interpretations so casting a wider net for consensus and feedback. How would you apply a prepayment to your loan with this verbiage?

The note is P&I for 30 years. 

It just means you have paid off the last payment, so the one due at the end of 30 years.  You're still going to have to make your monthly payments going forward.  Your last payment will also be smaller because no interest will be accruing on that amount, in fact, could even be you don't have to make the last payment.

Originally posted by @Ethan G. :

It just means you have paid off the last payment, so the one due at the end of 30 years.  You're still going to have to make your monthly payments going forward.  Your last payment will also be smaller because no interest will be accruing on that amount, in fact, could even be you don't have to make the last payment.

Thank you Ethan! This is most consistent with what others have been saying.

 

All amortized loans work that way.....same thing as saying “the interest due for any month is the annual rate, divided by 12, applied to the Current principal balance”.....same result.