I am selling my first house; after it sells I am going to put the money into my current house. I am wondering if it's going to lower my payment or just shorten the length of my loan.
2006-08-01 14:10:58 · 13 answers · asked by bwjordan 4 in Business & Finance ➔ Renting & Real Estate
Assuming you have a fixed rate or regular ARM: You will simply be reducing the length of your loan. Mortgage interest is calculated on a monthly basis. Once you've made your full payment for the month, then any extra money gets applied to the principal. The good news: Sending $25 extra each month to your mortgage can save you thousands of dollars in interest. You can get an amortization schedule for free by visiting www.bankrate.com. They have calculators that can help you plan out each scenario.
For instance: Every year when I have a raise, I divide the extra money between my 401K and my mortgage. My 30 year mortgage has now changed into a 20 year mortgage.
Prepay penalties may apply. If you send in small amounts like $25-50 per month, they may not apply. Check the fine print in your note.
If you have an Option ARM: again, your interest is calculated on the balance of your mortgage each mo. It will not affect your minimum required payment, but it may change the other 3 payment options.
2006-08-01 17:14:17 · answer #1 · answered by amkornele 3 · 0⤊ 0⤋
Making an extra payment shortens the length of the loan. Your current monthly payment will stay the same unless you refinance. If you are wanting to pay ahead on your mortgage, make a "principal only" payment. All the money will go toward the principal, reducing the length of your loan and saving you interest. Making an extra payment does not save you any interest.
2006-08-01 14:16:00 · answer #2 · answered by therego2 5 · 0⤊ 0⤋
The mortgage company usually applies anything over and above your regular payment to the principal balance. Your next and all future monthly payment amounts will remain the same and become due at the same time.
If you can afford to pay extra, you should, even if its only a small amount. Since it's applied to the principal you end up paying less interest in the long run.
But be careful...some loans have a "pre-payment penalty." This means that you have to pay a penalty fee if you pay the loan off before it matures. The mortgage company can tell you if there is a pre payment penalty with your loan.
2006-08-01 14:49:05 · answer #3 · answered by Jody B. 2 · 0⤊ 0⤋
It will shorten the length of your loan and (slightly) reduce the overall interest you pay. If you make just one additional house payment per year you will reduce a 30 year loan by about 5 years.
Ask your mortgage company to run some amortization tables for you showing different payments. Say $50 extra per month totally to interest. Then what about $150 extra per month? The more 'extra' you pay each month the larger chunk it takes off of your interest and ultimately the length of your loan.
I have paid an extra $50 per month since I bought my house 4 years ago, that equals about 1 payment per year and my loan did go from 30 years to 25. Nice little savings.
2006-08-01 14:18:30 · answer #4 · answered by Simone 3 · 0⤊ 0⤋
Don't make an extra payment. Instead, pay extra on principal every month. If you just make an extra payment you are still paying 75% towards interest and not the home. If you pay extra on principal every month you will end up paying alot less interest when the house is paid off. Even $10 a month extra in principal can save you thousands in interest over a 30 year plan. Contact your mortgage company and find out how to pay extra towards principal. Most mortgage companies you have to specify that the extra you are paying be applied towards principal otherwise they just apply it to interest and you lose it.
2006-08-01 14:19:12 · answer #5 · answered by Anonymous · 0⤊ 0⤋
I don't know a whole lot about this because I don't own yet but I have discussed this concern with others and I was told that when I do close on my home, make one extra payment per year or pay extra on my mortgage every month or a few months each year, (making sure that I specify that it is to be applied to my principal), and my mortgage will be paid off sooner. It will also increase the equity in my home alot faster.
2006-08-01 14:19:12 · answer #6 · answered by wauktown101 1 · 0⤊ 0⤋
If you refinance the loan and put the money you get from the 1st house into this one you could possibly do both...shorter term and lower payments
2006-08-01 14:17:38 · answer #7 · answered by chays 3 · 0⤊ 0⤋
It just means you have one less payment to make on the end.... if you have an installment loan you agree to make x payments in the amount of $x.
2006-08-01 14:14:25 · answer #8 · answered by JOEYSMOM2 4 · 0⤊ 0⤋
Depends on the terms of your loan- call your mort. company and ask for a loan review...bring up making extra payments.
2006-08-01 14:14:56 · answer #9 · answered by R J 7 · 0⤊ 0⤋
just the length of the loan
2006-08-01 14:15:00 · answer #10 · answered by mtngal_1966 1 · 0⤊ 0⤋