Early Payments Benefit Lender, Not Borrower*
Sending your monthly mortgage payments to your lender a couple of weeks early each month might sound like a smart-money way to pay less interest over the life of your home loan. In fact, early monthly payments simply give the lender free use of your money until the date when your payment is due.

Loan payment tracking systems typically record your payments on the first day of the month, regardless of when you send your check or have the payment withdrawn from your account. That means making monthly payments early doesn't reduce the total interest you'll pay over the life of your loan.

By the same logic, borrowers who pay late, but within the grace period (usually 15 days) get free use of the lender's money. This system is counterintuitive because it penalizes early payers and rewards late payers, but that's the way it works.
Source: "When Should Seniors Prepay Their Mortgages?"
Jack M. Guttentag, June 1, 1999.
* An SRES Article



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