What will prepayment go to, principal or interest for the mortgage?

Question

Hi, this is probably a dummy question. I am thinking to pay more each month for my mortgage. So my question is that will the extra prepayment go to the principal or the interest? If I pay more, will I get more tax deduction or less?

Thanks.

Answer 1

You can't pay more interest than they charge. An overpayment of your mortgage will apply the credit to your principal amount which in turn reduces the amount of interest you will pay the next month (simply because they are loaning you less money the more principal you pay). Hope that made sense.

Answer 2

If you make advance payments, the money goes towards the principal. The amount of interest you pay will be less, in total, so your mortgage interest deduction will be slightly less. The money you save on interest would be many times more than any tax savings gained by deducting the maximum interest.

I paid off my mortgage in four years. Not paying $5,000 in interest and principal was better than getting a pay raise.

Answer 3

If you pay extra, USUALLY it goes to principal. Most payment stubs also give you a box to fill in how much extra.

You will not get more OR less deductions, on a yearly basis, for the interest. It wont effect it, aside from the fact tha the interest you pay will VERY VERY minimally drop, becuse you're only getting charged interest on the remaining principal. If you still have 20+ years left on your mortgage, it will make a very small difference.

But remember when you deduct interest you're not getting your interest back dollar for dollar-- you're simply lowering your overall liability-- so its ALWAYS better to pay less interest to the bank than to get a higher deduction.

Answer 4

By law, mortgage companies can only apply any funds submitted that exceed the interest accrued to the principal. This means that extra monies aren't tax deductible. In addition, extra monies paid will not reduce your payment (if you are on an amortized or fixed loan), but will reduce the time to pay off your mortgage.

Your best bet is to take whatever money you want to pay extra and put it in an investment that will earn interest. This way, you have the same out of pocket cost, but in the end you will have the benefit of compounded interest and can pay the mortgage off much more quickly than otherwise. Just be cautious how you invest and manage the risk accordingly.

Best of luck!

Answer 5

PrePayment on Principle Only and do it as a separate check with the words 'Principle payment only' on it.

IRS states that 85% of home owners do not qualify to use 'tax break' on interest. your standard deduction is better for you.

this 'tax break' works this way you give the banker 1000$ the IRS gives you 280$ tax break? is that smart?
of course you worked to get that 1000$ after taxes and expenses. interesting 'tax break'.

if you pay as little as 100$ a mth on principle u will find your 30 yr loan finished around 17 -20th yr saving you upwards of 100,000$ in interest. this is one of the simplest, safest and best return on your money.
visit daveramsey.com to learn what the bankers pray you never ever learn and apply.

Answer 6

you need to specify when you send that payment in that you want it to go as addtl principal. Less principal less interest. Less of a tax deduction because of less interest payed.

Answer 7

It can go either to your interest or to your principal. You just need to specify that to your lender when you send in your payment. I write on my check to apply the additional payment to the principal.