<p>We were surprised (naive) to learn that paying off a substantial portion of a private loan during the grace period would not automatically lower the monthly payments - although the loan would be, per ACS, “paid off sooner.” ACS states, although I cannot find a reference in the loan documents, that re-amortization may be requested, and if there is enough time to process the request, payments would reflect the lower balance. We plan to pay the loan off by summer 2013. </p>
<p>Is there any financial benefit to lowering monthly payments to reflect the lower balance?</p>
<p>Original loan $29.500 private loan at 8.29 % fixed interest rate (includes orgin fee $1,168)
Grace period ends 3/30/12
Balance as of today $ 17,500
Anticipated balance as of 3/1/12 $14,500</p>
<p>Monthly payment per ACS set at $290 a month x 15 years based on original amt.</p>
<p>Daffy, is there any way you can get a home equity line to cover that? The balance is so low that it wouldn’t take much. OTOH, if you are planning to pay it off by summer 2013, you are still planning to pay much more than the scheduled monthly payment, so what would be the gain other than possibly a lower interest rate?</p>
<p>Sylvan -using a lower interest rate HELOC is probably the best option. Thanks for suggesting. </p>
<p>Sorry to be so dense - if I understand correctly, since the interest rate with ACS will remain at 8.29%, we will not owe less interest over the next 16 months by re-amortization. The monthly payment will be less but interest owed is the same?</p>
<p>The interest is typically computed every month based on the balance of the loan at the time. So if you plan to pay, say $1000 per month (regardless of the “monthly payment” specified on the invoice), you are basically taking control of the balance being used for the interest calculation. OTOH, if you want to pay less than the $290 per month (by re-amortizing to a smaller payment) and then pay off a lump sum in summer 2013, your monthly balance will be more between now and then, and the interest would thus be more in the long run.</p>
<p>I hope that makes sense.</p>
<p>Yes - that makes sense and answers my question. Thanks for taking the time to explain!</p>