For example, let's say my mortgage payment is $800 per month. What will happen if I pay $1000 every month? Will my required payment go down each month?
What if it's an interest only mortgage for 10 years and I pay $200 extra every month...will that go toward the principal?
2006-09-01 12:27:57 · 12 answers · asked by Dave 2 in Business & Finance ➔ Renting & Real Estate
Read your mortgage note. It will clearly spell ot how to pay on the principal, if there are any penalties for prepayment of the principal and where to mail separate checks for principal payments. Any principal payment should state that is for principal only clearly on the check with the account number.
If you are paying an interest only note it is based upon the balance owed. As the balance declines I believe the interest payment will likewise. For each $1,000 you borrowed you will pay about $7.50 in payment. To see a dramatic drop in the payment will require a significant drop in principal.
Anytime you can take steps ti reduce debt that is good. That is the best way other than not buying on credit to build your own wealth. On a traditional mortgage, after you have paid say $10,000 to $20,000 down on the principal you may ask to re-amortize the note. The interest rate remains the same, the time left remains the same, but the payment is recalculated based on the new balance. Since your payment is based upon the principal balance anyway there may be no benefit to re-amortize.
Explore that with your mortgage people and see if there us a benefit to be had.
2006-09-01 19:04:18 · answer #1 · answered by hithere2ya 5 · 0⤊ 0⤋
If you want to reduce your principal, tell them to apply the extra $ to the principal. Otherwise they may just mark you as being ahead on your payments.
You can normally ask them to recalculate your monthly payment, or they may automatically do it. If you keep paying extra every month then you will naturally end the mortgage sooner.
Agree strongly with other answer, pay off any high interest rate stuff you have (credit cards, car loans)
2006-09-01 13:12:14 · answer #2 · answered by larry n 4 · 0⤊ 0⤋
No, your required payment won't go down. IF you are going to pay extra on an interest only loan, be sure to specify "where" you want the extra money to go to. In not specifying, the money will probably be dumped into an escrow account (if you have one set up for taxes, ins.) and will not be applied to the principal.
The benefit to applying extra to the principal each month is that you are reducing the balance. . .so in 10 years, should you choose to sell. . . you'll put more $ in your pocket than if you had only paid on the interest.
2006-09-04 15:56:01 · answer #3 · answered by free2b 3 · 0⤊ 0⤋
In #1. Your payment stays the same but your balance/payoff goes down faster.
In #2. If you do not specify on your payment coupon it will usually go to your escrow account but if you specify principal thats where it will go.
BUT never pay extra on your mortgage if you have any other bills at a higher interest rate, such as credit cards or car payments!!
2006-09-01 12:33:17 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Canada or USA, it all depends on the fine print in your mortgage application. Some mortgages have a pre-payment penalty built in. I think it is rare, but you bank can tell you. By the way if you have other interest bearing debt at higher rates than your mortgage, you might want to do that first. Grandpa
2016-03-27 03:45:33 · answer #5 · answered by ? 4 · 0⤊ 0⤋
Well, A Mortgage Is Basically 1 sum That Gets re-evaluated every day,
-Depends If your minimum payment is $800.00, Then NO.
Everything You owe together will go down quicker and the more you do this and with even greater amounts, the Exponentially Quicker it'll be paid off Just like if you pay nothing the total amount will exponentially grow.
2006-09-01 12:29:05 · answer #6 · answered by Spaghetti MY 5 · 0⤊ 1⤋
If your loan is amortized (principal and interest) then no your payment will not get smaller each month; the legenth of your loan will be shortened though resulting in you paying less interest over the life of the loan.
If your on an interest only payment and you make payments to principal then yes each month your payment will be slightly less since your interest only payment is based on the current loan balance.
Hope this helps.
Kevin 866-562-6838 x 106
2006-09-01 12:32:22 · answer #7 · answered by Mudisfun 3 · 1⤊ 1⤋
I don't believe it ever goes toward principal in an interest only mortgage. For a traditional mortgage you could specify that the extra goes toward principal. It won't change your payment, though.
2006-09-01 12:30:57 · answer #8 · answered by wildstar_2 6 · 0⤊ 1⤋
Any money you over pay for your pymt is applied to principle. If you always pay more (even $50-100) you could knocked a couple years off your loan. Your payment stays the same.
Im not 100% sure of the same thing applies to an interest only loan.
2006-09-01 12:36:19 · answer #9 · answered by Kristin Pregnant with #4 6 · 0⤊ 0⤋
You need to check with your lended to see if additional payment will reduce principal. It may. But at the end of 10 years you have taken $24,000 off the principal. You will be in better shape to re-finance.
2006-09-01 12:31:37 · answer #10 · answered by Steve P 5 · 0⤊ 0⤋