ACCELERATED PAYMENT STRATEGIES
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              The  basic  idea  in  developing  an improved prepayment 
         ("acceleration")  strategy,  especially  for mortgages, is to 
         consider  prepaying  unequal extra amounts towards principal.  
         The  most  common  situation  is  apparently  to add the same 
         extra  amount  in  each  regular  payment, but this is a poor 
         approach.  The following example shows why.
         
              With  no  prepayment,  a 30-year mortgage for $50,000 at 
         9%  is paid off in 360 monthly installments of $402.31 (total 
         interest,  $94,832.07).   If an extra $50 were added to every 
         payment,  the  loan  would  be  paid off in 237 payments at a 
         savings  of $37,900 in interest.  This simple strategy yields 
         an  effective  annual  percentage rate (APR) of 8.978%.  Over 
         the  life  of  the loan, it prepays a total of $11,850 toward 
         the principal.
         
              Significantly   better  results  are  obtained  using  a 
         strategy  of unequal prepayments.  If, instead, an extra $100 
         were  added  to  the  first  60 payments and $35 to the rest, 
         then  the  mortgage  is  retired  in  only  218 payments, and 
         $45,614  is  saved  in  interest.  The effective APR drops to 
         8.635%,  a  substantial  reduction.  And the total prepayment 
         against  principal  is  actually  a few hundred dollars less!  
         Still   better  strategies  can  be  developed  by  gradually 
         tapering  the  prepayment  amount,  but  this  simple example 
         illustrates the general effect.
         
              Another  critical  aspect  of developing a sound prepay-
         ment  strategy  is taking into account the effect of interest 
         rate  changes.   This  is  particularly  important  to anyone 
         financed  with  an adjustable rate mortgage (ARM).  When, and 
         by  how  much, the interest is changed will materially affect 
         the  performance  of  any prepayment schedule.  Even the best 
         strategy   can   fall   apart   because   of   interest  rate 
         fluctuations  that  weren't  taken  into  account when it was 
         developed.  Proper  consideration of this issue is a must for 
         anyone thinking of prepaying an ARM.