Can you only make principle payments and avoid paying interest on a home loan?

Question

I had heard before from someone that you could ask for an amortization schedule and make a prepayment of the principle each month and avoid paying the interest for that month. Is that true? or how does that work?

Answer 1

No, that does not work. Any amount OVER your required monthly payment is fully applied against the principal amount of the loan, and reduces your interest in the long run. However, doing so does not reduce your monthly required payment. It only reduces the principal amount, causing the next regular payment to have more of itself applied to principal and less to interest.

The net result, of course, is that your mortgage is retired before its full term.

There are calculators at bankrate.com which you can use to show how much your mortgage time is lessened by inserting your original principal balance, your interest rate, term of mortgage AND additional amount paid per month over and above what is required.

Answer 2

Your question is really asking something else and it is not worded totally correct. Yes you can, sort of. The faster you pay off the principal, the less interest you will pay over time. You will aways have to pay some interest on a home loan so you can never avoid it all together.

What you heard is correct. When you make a monthly mortgage payment you reduce your principal balance. For instance, when you make your July 1 payment, you are paying for interest that was accrued in June (you are in arrears). The principal reduces and when you make your August payment, more money goes to principal and the amount that goes to interest is less. If you send extra pricipal then the balance will be lower and your next payment more will go to principal and less to interest and so on.

The general rule of thumb that people try to go for is take your monthly payment divide that number by 12 and pay 1/12 of your payment each month extra. This will make it so you pay 13 payments each year. This will take approximately 8 years and several months off of your loan. Search for an amortiziation schedule and play around with payment amounts and you will see. The more you pay extra, the less interest you will pay over the life of the loan because as each payment comes due you acrue interest on your current balance. Therefore you loan will pay off earlier.

I hope that makes sense, but if you find a amortization calculator you will see.

Answer 3

You are close...it's more of an overall savings over the life of the loan than a month-to-month savings.

If your required payment, is 500 per month and you paid $600, for that month, the additional principal payment would come off the TOTAL principal balance b/c you not only have your current month's principle credited, but $100 toward the overall principle.

What it amounts to, is at the end of the term, you will shave years off your mortgage and the interest you will save is in the thousands. You don't see the savings immediately or even in a few years.

Think of it as a short-term sacrifice for a long-term gain.

Answer 4

Not you must pay interest all the time, maybe you mean if you can payoff your loan by adding more money to your principal?

the best way to payoff your loan faster is to obtain a loan for 15 or 20 years instead the usual 30 or some people that even consider paying in 40 or 50 year loans.

There is a new program that you can actually payoff your home in less than 12 years , this particular program you pay interest on a daly basis intead monthly like every one else.

I am a loan broker in Orange County California if you have any adittional questions feel free to contact me anytime.
I lend money in all 50 estates

Answer 5

No that is completely false. You can never afford paying interest on a loan, however you are allowed to make advanced payments on a loan if your lender will allow you too. Home owners can make payments in advance for monthly payments by doing bi-weekly payments or buying just adding more money towards your monthly payment. Regardless your monthly payment will always stay the same but your schedule of payments will be reduced

Answer 6

I think you may have misunderstood what that person told you. You can make a prepayment of the principal, and avoid paying interest ON THAT PORTION. It works because you've paid it down, so obviously interest won't be calculated on that portion anymore. But the difference is minimal.

Answer 7

Never gave this much thought

Answer 8

Why are all the answers so short these days?