Making extra mortgage principal

9 Replies

How does making an extra say $1000 towards mortgage principal affect the mortgage? For example if I pay an extra $1000 on the 15th, would that reduce the amount of interest I pay next month since my mortgage balance is reduced by $1000? Do I just look at the amort schedule to see what the effect it?

Pls advise thanks

Yes essentially that is it. However make sure you arrange everything with your mortgage company and they know your intentions. Make sure they know you are offering to pay down the principle. The of course the interest payment part as well as your principle payment part will be lowered for remainder of your loan repayment period. 

thank you

since this is 30 yr fixed, my payment per month won't change correct? however since my loan balance is $1000 lower, this will cause my more of my monthly payment to go to principal and less towards interest correct?

Just making sure I understand the concept....So do I write on the check...this amount of $1000 is being paid towards prinicipal only...how do i inform the mortgage company on this?

Bankrate.com has a calculator and amortization table for this. Check it out, I use it all the time.
You need to talk you your mortgage holder first and ask what options do they have in place
There are plenty of calculators online to see the effects, like Judd Campbell said, bankrate.com has some good ones. Although, is this the best use of your spare $1000 per month? Might be better put to work building up a deposit for your next property.
Your mortgage company will usually send a coupon sheet you can fill out each month where you can write how much you want to pay extra on principal. This is sent with your monthly bill by mail and you can write one check for the total amount I believe. You can also arrange for this to be entirely automated and withdrawn from your bank account monthly.

thank you all...

hi nigel and all,

yes, I worked on looking at the fact that $1000 per month would be better off as a down payment on another property. But my circumstances are that I may relocate to Europe very soon, so I do not plan to purchase anything now. Moreover, if I put more towards the principal, then I pay less interest each month and payoff my loan sooner, higher cashflow also in future. With the housing meltdown, the property value is down and so I cannot even sell without taking a hit, plus renting has become harder and there is a lot of pressure to reduce rent etc...

So this strategy will enable me to have more flexibility on being competitive on the rent i charge which I reduce to attract stronger tenants, without taking a loss on my monthly rent cashflow...

I was looking at all the options given my circumstances etc...

Please advice as I am new to all this...What do others do in my scenario...

thanks

@Vik Ari

Vik

It sounds like you have thought through your options, that was the main purpose of my question.  It's a tricky situation, but if it were me, then I'd probably save at least half the money until I was definite the move was going on or not.  Then you can still apply it as a lump sum toward the principal when you are sure that's what you want to do. If the move doesn't transpire then at least you can do something else with it.  

First, speak with your mortgage company, check you can make regular or one off principal payments, without penalty.

Bearing in mind it can be hellishly expensive to live in Europe (depending on where), you might need that savings.

Hedge your bets a bit, because it's a lot easier to give the bank money, than it is to get it back.

@Vic,

I did something called as "Loan recasting". What that means is your interest rate and the maturity date of the loan stays the same. I pay additional principal of say $10K or $20K and the bank would recalculate my new monthly payment. 

In my situation, this reduced my monthly payment and i started having +ve cash flow on one of my property. (I bought this condo in 2005 when i had 0 knowledge on RE and all i needed was a nice new home). 

Dont stop investing in RE after you move to Europe. Share your experience buying/selling properties in that part of the world.

Good luck.

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