When I pay off the mortgage? Can I specify that the payment is for principal or the interest?

Question

I am buying a new house and I want to pay it off quickly. The monthly payment is $1700. Does it go towards "interest" or "principal"? Suppose i pay off the house in 2 years then will I pay interest for 2 years only?

Answer 1

Any amount you pay above your required monthly payment will go straight to principal.

Paying off your mortgage is never recommended for a great deal of reasons. I can give you specific numbers if you will provide the following by adding details to your questions or sending me an email.

Value of your house:
Balance of Mortgage:
Interest Rate:
Contract term of loan:

I'll work some numbers for you so you can see the harm you could potentially do to your net worth if you payoff your mortgage early.

Answer 2

In the first few years of a morgtage, most of the payments are applied to interest. This is why one has no equity in a home until about 5 years.

If your contract allows you to pay extra on the principal at any time, you will reduce the total interest paid and pay off the note sooner.

You may find that the lender will penalize you for early payoff.

You cannot stipulate what part of a payment is applied to interest or principal. Only an extra amount is applied to principal.

If you pay off in 2 years, yes, you would only pay 2 years interest, unless there is a penalty clause.

I am aware of one lender that charges 10% of the balance if paid off sooner.

Answer 3

Well let's start with the mortgage contract with your lender. Make sure there is no pre-payment penalty. If not, then you can pay the balance of your mortgage when you want and have no more payments. There are different mortgage programs that allow you to pay off more with each payment. As for your question on the $1700 per month, depending on the terms of your mortgage this MAY cover principle and interest. We have no way of knowing what your terms are. Again when you pay the entire balance, you will no longer have payments.

You might want to keep in mind the other financial advantages to having a mortgage payment. Consider consulting with a tax advisor as to what would be best for your financial picture.

Answer 4

You'll need to check your contract as additional capital payments may incur a penalty charge. You may be able to make a single large capital payment at the end of the year - and thus reduce your interest payments in the following year. Paying a mortgage in two years is quite likely to leave you with a penalty early redemtion fee anyway. You must go through the fine detail of your mortgage - we cannot tell you that here.

Answer 5

a standard mortgage pays all the interest, then pays down the principle, usualy its slow at first then faster. if you paid one or the other it would make no difference, once the interest is accrued, it comounds just like principld. separating the two is easier for ilistrative purposes, it serves no financial need, you can make additional payments, these go to your principle only, since you already paid all the interest. I dont know the amount financed, but 4 years is an optomistic goal, will require lots of additional payments and dicipline. good luck, being mortgage free is a wonderfull feeling

Answer 6

You can specify it if you've already sent in enough info to cover all interest and principal due for that month. Yes, if you pay it off in 2 years you only pay 2 years' worth of interest. http://www.choicefinance.net/calculators/mortgage-length-calculator.php

Answer 7

Interest is typically higher in the early years.

If you pay it off in 2 years it is paid off, no more payments period.

Only you can determine if paying off a home is a good strategy. To me it is not.

Answer 8

depends of type of morgage...you better get laywer to look before u sign...and look out for a prepayment penalty...READ the darn thing...many morg are intrest paid first...you pay for years and have nothing paid off!!!!!!!!!!!!!