This might be a dumb question...paying extra per month...

8 Replies

If my PITI Mortgage is ~2750k/month and I pay an extra $250/month so ~3000k total...is that $250 going straight to principal or does it get

split between principal and interest?
it goes towards the principle. Just be advised that you generally don't want to do this on a cashflow property.

@Steve DellaPelle , it CAN get 100% allocated to your principal, but you'd need to advise the Bank EVERY time that the EXTRA $250 is "principal-only". Get Receipts from them, accordingly. What that'll mean is, yes, the principal goes down that extra $250/m, but, at the same time you are NOT getting ahead of your commitment to still pay $2,750/m, in case you thought you could just start adding up how much you were getting ahead, and just not pay that amount at your choosing. No, but, if you DON'T say "principal-only", it gets amortized at the same proportions as the rest of the payment, BUT, you'd start getting ahead of your REQUIREMENT to pay $2,750/m, until you're not ahead anymore. 

Get what I mean? If that was clear as mud, I'll have another go at explaining, later. Not a dumb question. Cheers...

@Brent Coombs I believe I understand what you are saying! Thanks for the information...so if my goal is to pay down the principal  balance to achieve 20% equity to refinance then I am much better off paying the extra and making it clear this is for principal only.

Originally posted by @Steve DellaPelle :

@Brent Coombs I believe I understand what you are saying! Thanks for the information...so if my goal is to pay down the principal  balance to achieve 20% equity to refinance then I am much better off paying the extra and making it clear this is for principal only.

Yes. But NEXT time you buy, it'll be better if you buy it at a 20%+ discount, from a motivated seller, on day ONE, right?

Originally posted by @Steve DellaPelle :

@Dillon Leider Why is this the case for cash flow properties?

Because that money basically goes into the vault to die a slow death. If it's a huge appreciation play, then maybe it would be worth it to pay down the principle in anticipation of your eventual refi. If it is simply a cashflow property, then you want that money to be liquid and available to you immediately for your next investment.

If you have enough reserves to pay for emergencies that might arise or vacancies on your property then you'll be fine. It goes towards principle and you can pay it monthly or at one chunk. It doesn't go towards a slow death, it goes to being able to reduce your payment when the PMI is reduced and you then get more cash flow monthly. Which in turn you can apply towards the balance and pay the property off quicker giving you even more cash flow. Depending on the type of loan and if you have good interest rate, there may be no need to refinance. I simply called my bank a few years ago and told them the value changed and they made the PMI go away. I might have had to give them an appraisal or tax records, I don't remember as it was years ago.

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