So many people I talk to want to know what's the best strategy for prepaying their mortgage. Ah, yes, the dream. We want to own our own homes but we don't want to be paying for them forever.

The answer I always give people is that if they want to pay off the mortgage sooner they should pay as much of the principal as soon as possible. The odd thing is people don't seem to grasp this. Maybe it's the result of advertising and marketing overplaying the appeal of "making one extra payment". It sounds so simple: Make an extra payment on your mortgage every year and you'll own your home that much faster.

Imagine for a moment you're a mortgage lender. Your business has been good for the past few years. Homes are selling like hotcakes, and the closing costs and other fees you take in on each home sale keep growing as the prices of the homes you're financing grow. You've heard the talk of a housing bubble - all that business about trees not growing to the sky and such - but you're not concerned because you're a conservative lender.

You only lend money to people with the best credit ratings. Nothing but low risk loans. The appraisals all check out. The value of the homes you're carrying easily offsets the mortgages you're writing on them. In fact, in 35 years of home pricing history, home prices have never fallen. You're virtually assured it won't be more than a few months before appraised values rise well above the mortgage loan amounts.

An email I received over the weekend was sort of a knock on the head. The sender made me realize that sometimes I dive too deep in my articles. I assume too much knowledge on behalf of the reader. The suggestion was that I create a few "Personal Finance 101" articles with some basic personal finance rules and definitions.

Fair enough. Today I'll start with some of the terms you might encounter when buying a home. After all, buying a home is unlike almost every other kind of purchase. The activity has its own language; and as anyone who has visited a foreign country can tell you, not understanding the language can be not only intimidating, it can get you int trouble.

Down Payment - This one's easy, just like when you buy a car. The Down Payment on a home is the initial amount you'll want to pay in cash toward your home's purchase price. Your down payment becomes your initial home equity. The amount of your down payment is typically expressed as a percentage of the purchase price. Down payments are usually in the 15-25% range.

A large down payment–typically 25%–may help you get a more favorable interest rate and let you avoid paying for mortgage insurance.

All this talk about mortgages... Can you tell housing prices are slumping and people are finding themselves upside down? I hope you're not one of them. That's a hard lesson to learn.

I'm amazed at the number of conservative people I know who would never dream of buying stocks on margin, or buy calls or puts; but who think nothing at all of their struggle to make payments on their million dollar mortgages.

I must be getting popular. No complaints. Being in demand is a good thing. I have a new review for you today. The good people over at Mortgage Loan Place have stepped up and asked me to review their site and the information they're serving up.

First off, what is this site about? There is no "About us" page to access, but their tag line makes it pretty clear:

Mortgage and Refinancing FAQ’s - Your Questions Answered

OK, mortgages are something I'm very familiar with I should be a decent judge of the advice they give. Let's check on one of their answers, shall we? Under the Mortgages heading is an item that caught my eye: When Spouses Have Different Credit Scores.

Got a mortgage payment? Yeah, who doesn't. And chances are, if you have a mortgage payment you also have to deal with escrow payments. Escrow is the bank's way of making sure you take good care of their property until you pay off your mortgage and turn it into your own property. Your mortgage lender collects additional funds each month in an escrow account. When taxes and/or insurance are due, the bank uses escrow to pay them.

It's a little more complicated than that because things like taxes and insurance aren't easily predicted. The sum of your escrow payments probably won't balance with the tax and insurance bills at the end of the year. GnuCash does an exceptional job of keeping track of exactly what's going on with your mortgage and your escrow account. Here's how to handle escrow payments in GnuCash.

I had lunch with a good friend yesterday. Among the topics we discussed was whether he should refinance his mortgage. He'd been to see a mortgage lender but came away frustrated.

The mortgage refinance officer he'd been to see frustrated him because to my friend it seemed like all he wanted to discuss was the lower monthly payment amounts. His current mortgage is a 15 year loan. The new one he was looking at was a 30 year loan at a slightly lower rate.

But my buddy wasn't interested in reducing his monthly payment at all. He only wanted to know whether he'd come out ahead in refinancing his mortgage to the new rate. His meeting with the banker ended in frustration for both parties.

I got to thinking about his situation and did a quick analysis to see what the effects of refinancing his mortgage might have been. The numbers I'm using here are hypothetical but they do reflect his situation. In other words, I don't know what his mortgage principal and interest rate are; but I do know he's been paying on his existing 15-year mortgage for about 7 years.